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Investor boot camp is a series of articles, of which this is the ninth and last, designed to teach the fundamentals for do-it-yourself investors.
If you want higher long-term returns while you keep your peace of mind, this series has covered the most important things you need to know, without paying for a professional adviser.
The lessons in this article—and those in this series—might seem obvious. It’s pretty easy to know them and understand them.
However, mere knowledge and that understanding won’t do you any good unless you take action.
These lessons can change your life and literally be worth millions of dollars to investors who put them into practice. I’ve emphasized this in a podcast I recorded to supplement today’s discussion (you’ll find a link at the end of the article).
In boot camp for investors 2023:
The recommendations in those eight articles are based on solid academic evidence, not opinions or predictions.
Although much of this material is aimed at people who are saving and investing for retirement, these lessons are useful to investors of any age.
Lesson 1: If you want long-term results, you’ll have to take the long-term view of things. Investing is a journey, not a series of discreet events.
Late in 1999, the world faced a threat known as Y2K. When the calendar reached Jan. 1, 2000, people feared that most computers would no longer be able to keep track of dates. Airliners would fall from the sky. Banks would lose track of money. The world could be plunged into chaos.
None of that happened, and the whole thing seems a bit silly now. But nobody could be sure ahead of time.
The most successful investors are those who can stay the course despite today’s crises and the fact that the future must always remain unknown.
Lesson 2: Simpler is usually better. Online articles like 150 portfolios better than yours can present such a headache-inducing complexity of choices that you’re unlikely to take action.
Just as its title says, the second installment in this series presents seven simple and successful combinations of assets. Over the past 53 calendar years, each one significantly outperformed the S&P 500
SPX,
with smaller losses during the roughest periods.
Lesson 3: More is sometimes better. The reason those seven portfolios outperformed the S&P 500 was simple: They diversified into additional asset classes that have produced higher long-term returns.
Lesson 4: Less is sometimes better. Lower expenses, lower turnover, lower tax exposure—all these are in your favor. And fewer funds in a portfolio make things much easier to manage.
Lesson 5: Small changes in your portfolio can make huge changes when you’re retired. In the seventh installment, I quoted Chris Pedersen, director of research for the Merriman Financial Education Foundation and author of “2 Funds for Life,” as saying that shifting only 10% of your portfolio into small-cap value stocks can add 25% to what you have in retirement. Shifting 20% of the portfolio could boost your lifetime benefit by 75%.
Lesson 6: Seeking the “perfect” portfolio is a fool’s errand. Voltaire is quotes as saying: “Perfection is the enemy of good.” You’re far better off if you can find something with a good track record, that’s understandable and manageable, and that you’re willing to live with for a decade or two—or a lifetime.
Lesson 7: Time is your friend, if you use it. The biggest gains from smart investment choices will be felt by young investors. Even with relatively small regular savings (see the fourth installment in the series), a 20-something investor can accumulate impressive wealth by retirement age. Those who don’t start until their 40s or 50s will have to save much, much more to achieve a similar result.
Lesson 8: It’s never too late to make a change for the better. Throughout this “boot camp” series, I’ve stressed the long-term benefits of investing part of your portfolio in small-cap value stocks. But even if your investing time horizon is short (as we saw in the seventh installment), small-cap value stocks are likely to outperform the S&P 500.
Lesson 9: The very best time to retire (assuming you have the option) is when you have saved more money than you think you’ll ever need. This lets you spend more and worry less. I have never met anyone who wished they had retired with less money.
Lesson 10: This is a variation of the very first lesson: If you want more peace of mind, do two easy things: First, do your best to make good long-term choices. Second, let those choices play out. The future will evolve in ways we cannot predict, and you aren’t likely to do yourself any favors by trying to micromanage the in-between years.
If you study the articles in this series and put these lessons into practice, you’ll be well on your way to giving yourself and your family a combination of peace of mind and a more comfortable retirement.
To supplement this article, I’ve recorded a podcast discussing investment decisions that are guaranteed to change your financial future.
Richard Buck contributed to this article.
Paul Merriman and Richard Buck are the authors of “We’re Talking Millions! 12 Simple Ways to Supercharge Your Retirement.” Get your free copy.
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