Investing is inherently simple — we buy slices of companies in the hope that their revenues and profits will continue to rise and the share prices will follow.
But how can we avoid the frustration, impatience and stress that investing also seems to bring? Here are just a few suggestions.
1. Stop checking
How often do you look at your portfolio? If it’s anything more than once-a-day, you’re displaying behaviour akin to a trader rather than a long-term investor.
Of course, never checking the health of your portfolio can be just as bad. How can you know whether you’re on progress to meet your financial goals or required rate of return if you never check how things are going?
There is a solution. Simply set up price alerts for when a stock rises or falls by, say, 5%. This way, you won’t be anxiously glued to your computer screen. The London Stock Exchange website offers such a facility.
It’s also worth accepting that you have absolutely no control over what happens in the stock market, only your attitude towards risk. If you’re losing sleep over how your investments are performing, it’s worth asking if your asset allocation truly reflects your risk profile.
2. Be realistic
When it comes to performance, it pays to keep expectations realistic. This can apply as much to ourselves as the companies we choose to invest in.
Investing legend Peter Lynch once asked a group of wealthy retirees living in a beautiful location whether they had managed to beat the market. Their response? They didn’t care. Most were simply happy to live out their twilight years in absolute comfort.
Lynch’s point here is one we can all subscribe to. Don’t bother comparing yourself to a certain benchmark or quibbling over the odd percentage point. So long as you’re buying solid companies, you should be just fine.
3. Be sufficiently diversified
As much as we’d like every investment we make to come good, the fact is that a proportion will either struggle or be acquired long before they’ve had a chance to make us rich. Knowing this underlines the importance of being sufficiently diversified. Spreading your capital around 15 or so companies operating in different sectors and industries should allow you to avoid most unpleasant surprises.
4. Don’t rely on the market
Unless you’re dependent on your investments for income (in which case keeping all your capital in equities is not the best strategy), it’s important not to rely on your portfolio to make ends meet. While shares tend to outperform all other investments over the long term, predicting exactly what will happen to your companies over the next one or two years is fraught with difficulties and caveats.
Given this, it’s usually best to avoid the stock market if you suspect that you’ll need access to your money within the next five years.
5. Don’t disregard trackers
Thanks to their ability to research and buy shares in companies ignored by most fund managers, private investors are actually at a considerable advantage.
However, if seeking out decent investments causes you to sweat, there’s always the option of tracking the market return through an index tracker or exchange traded fund. Not only will you get instant diversification (see above), you’ll also avoid all the large — and almost certainly unnecessary — fees demanded by professional investors for possibly worse performance.
Keep calm... and make a million
In addition to keeping track of how your investments are impacting on you, there are a number of other steps you can take to increase your chances of success in the stock market. 10 of these are detailed in a special wealth-creating report from the analysts at the Motley Fool.
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Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.