Investing Essentials: Fundamental Skills Lead to Success

As many of you know, I played basketball in college and in Europe after graduating from college. I was always known as a very smart and fundamentally sound player. I could shoot, pass, dribble, rebound and play defense equally well. As a young player growing up, I had good coaches who helped me work diligently to master the fundamentals of the game. Every game, profession or skill has its essential fundamentals that must be mastered in order to excel, and successful investing is no exception. The following five fundamentals are essential in investing:

Keep investment costs and taxes low

Use low cost investments, and place higher yielding, tax-inefficient investments in retirement accounts to significantly reduce your expenses and taxes.

Reduce risk - not returns - through intelligent diversification

Strategically combine various asset classes in an effort to reduce risk and increase returns over the long term.

Pay attention to market valuations

Be aware that there will be periods when markets are significantly over or undervalued compared to history. Use metrics to help identify these periods and make tactical decisions, but be humble in this endeavor and do not make outsized bets on any forecast. Recognize that valuation metrics are a poor predictor of short term returns.

Know thyself and put fear and greed to work for you - not against you

Knowing your own emotional make up is absolutely essential to successful investing. Having an appropriate asset allocation, and developing the ability to buy assets after they have fallen in value and sell them after they have increased in value is critical. Most poor investment decisions are caused by uncontrolled short-term emotions.

Rebalance to buy low and sell high

Learn how to execute a flexible, yet disciplined rebalancing strategy. This will force you to buy low and sell high over the long term, and you will be far ahead of the average investor who engages in the exact opposite behavior.

Mastering these investment fundamentals takes time, effort and experience just like the mastery of any skill or profession. As expert integrated wealth managers, we implement these investment fundamentals on behalf of our clients on an ongoing basis.