3 New Year’s resolutions for 2020 I think Warren Buffett would approve of!

Following these three steps should improve your investment returns this year, writes Thomas Carr.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The start of the year is the perfect opportunity to focus on how to build our wealth and put us on a path towards financial prosperity. For the vast majority of us, the best way to achieve our financial goals is by investing in the stock market.

With that in mind, I’ve put together three simple steps to improve investment performance in 2020… and I think Warren Buffett would agree.

1. Invest regularly

A good way to build future wealth is to get into the habit of investing in the stock market regularly. I recommend investing a set amount at the beginning of every month, into FTSE 100 mega-cap stocks in particular.

Regular investing means that we don’t need to worry too much about the cyclical nature of the stock market. Instead, our entry points are averaged out over longer time frames. This makes it more likely that we will not invest all of our funds at the top of the market – when share prices are less likely to rise.

Of course, we still need to make sure that we pay careful attention to valuations and don’t overpay for stocks. For best results, invest in a different stock and a different sector, every month, and consider throwing in some global index trackers for good measure, to make sure investments are well diversified.

2. Buy and hold

While I advocate investing regularly, I don’t recommend selling regularly. Warren Buffett, arguably the most successful investor of all time, famously said “if you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes”.

When we invest in a stock, we should already have done the upfront research that gives us a conviction that a particular stock is a good long-term buy. Short-term stock market dynamics should not affect this conviction.

Excessive buying and selling of stocks results in higher trading costs, effectively suppressing investment returns. What’s more, investors who only hold stocks for short periods of time miss out on what is in effect the stock market’s greatest power – its ability to compound returns over time.

Investors buy stocks and then hold them, with a belief – based on company and market fundamentals – that a company’s earnings will increase in the long run. Those that buy and sell frequently, and hold stocks for only short amounts of time, are more like traders, betting on short-term price movements.

3. Keep calm and carry on investing

With up-to-the second 24-hour news and media sensationalism, it often feels like current geopolitical and economic developments are unique, and that the world is about to end. The reality is that every year is full of drama, and 2020 will be no different.

The stock market has consistently demonstrated its ability to gain value through a wide range of different scenarios. In fact, the vast majority of what at the time seem like big news stories, do not actually affect the market at all in the long term.

It goes against human nature, but if we all just remain a bit more rational, ignoring external noise, and continuing to invest in times of uncertainty, then our investment returns would be the better for it.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Views expressed in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

£9,000 in savings? Here’s how I’d target a £14,616 annual passive income with M&G shares!

Big passive income can be generated over time with 9.5%-yielding M&G shares, especially if the dividends paid are used to…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

If I’d put £1k in this FTSE 100 stock five years ago, here’s how much I’d have now!

Mark David Hartley works out what sort of profit he’d have made by investing in this FTSE 100 pick pre-pandemic.…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

After crashing 50%, is now the perfect time to buy this world-class FTSE 250 share?

The worst-performing share on the FTSE 250 over the last year is also the most exciting one of all. How…

Read more »

Illustration of flames over a black background
Investing Articles

Just released: July’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

Is this one of the FTSE 100’s best-value growth shares?

Looking for great-value recovery shares to buy today? Based on City forecasts, this could be one of the best that…

Read more »

Investing Articles

Will the Tesco share price hit a 10-year high in 2024?

Up from 200p less than two years ago, the Tesco share price has enjoyed impressive growth lately. Now I'm considering…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Nearing its 12-year low, this FTSE growth stock could be the bargain of the year!

Harvey Jones has happy memories of owning this FTSE 100 growth stock. Now he's wondering whether to take a trip…

Read more »

Investing Articles

BT share price: a bargain or one to avoid?

This Fool has been keeping tabs on the BT share price. Despite looking cheap, he's steering clear of the stock…

Read more »