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When it comes to investing, you don’t need to time the stock market to be successful.
Today, we’re going to share some valuable insights about investing in the stock market and explain why focusing on what’s in your control (rather than what isn’t) will help you find greater success with your investing.
Keep reading to find out how you can make smart choices while investing in the stock market!
Many times, we find that investors are fixated on trying to figure out what's going to happen in the stock market in the short term. However, the reality is that you cannot control the short-term movement of the stock market. That’s why we believe you shouldn’t waste your time trying to time your stocks in the short term, either.
What you should be doing instead is controlling your allocation and what you have in the stock market. This is where you'll find most opportunities to invest.
Areas You Can Control When It Comes To Investing
The billion-dollar question is, what can you control when it comes to investing? There are six main areas that are in your control:
1. Asset Allocation
The first area investors can control is asset allocation. According to the Brinson Beebower study, more than 90% of your returns are based upon asset allocation and not the security of your investments. Given this, you want to have the right allocation within your risk tolerance that’s going to make you money over time. This way, you have control over how much you have not only in the stock market, but also within different areas of the market like large-cap stocks, small-cap stocks, growth stocks, value stocks, and emerging markets.
When creating asset allocations it's important to consider and recognize diversification because there will be instances where in one year emerging markets may have been the lowest-performing allocation, but the next year it may be the best. So diversification reduces your risks because you’re not trying to guess which asset class is going to be a winner and it provides you with a better rate of return.
2. Diversification
Beyond asset allocation is diversification. Many times, we have investors come to us who have made a lot of money with just a few stocks because, yes, if you only have a few stocks and they happen to outperform, you’re going to make much more money than you are in holding the entire market.
However, on the flip side, you could also lose just as much — or even more. Therefore, by having a diversified portfolio, there's less risk because there's less of a chance of losing money.
3. Rebalancing
Buy low and sell high.
We have to create certain targets and avoid investing emotionally so you do not overweight a particular area. The goal is to maintain the target asset allocation and manage risk effectively.
4. Fund Expenses
Believe it or not, controlling fund expenses is something you can do.
It's as simple as going online and searching up the summary of the fund and their expense ratio. There are multiple approaches to determine the average fund expense ratio for the particular sector. At Heller Wealth Management, we show our clients what their expense ratio is compared to what the averages are, which ultimately helps them compare to other funds that would be similar or less expensive.
5. Taxes
Remember, it's not what you make, it's what you keep.
You don't want to have taxes control your investment strategy, but you want to be able to figure it out, so take the time and learn about tax-efficient investing strategies.
6. Amount You Save
Controlling how much you save, or what you’re compounding, is a great thing. You can control the amount of savings you’re putting into the stock market. Say you're saving up for a down payment next year. That means you're going to invest differently than if you’re saving for your retirement. You can control how you invest for the different goals you are trying to achieve.
These are just some of the areas you have control over when investing. It's important to remember when we look at investing to focus on what you see, what you can control, and to have an effective investment strategy and portfolio that works for you.
You don't need to worry about what’s going to happen in the stock market over the next few weeks, months, or even years and you definitely should not be trying to outperform the markets to be successful.