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BLOG: Successful investment strategies should be boring

Chris Williams
Written By:
Chris Williams

Investing is rarely seen as exciting and glamorous, and perhaps that’s how it should be.

When it actually comes to investing money not all investors are happy with boring. The thrill of finding ‘the next big thing’ and the lure of quick cash can take over. But the key for many of the most successful investment strategies is often to focus on the boring stocks which do as you would expect.

While we are programmed to take action at all times, sitting back and doing nothing is often a much better strategy than getting caught up in all the hype.

But why exactly is boring a better strategy for successful investing?

Stop fiddling with your investment

Boring works for a number of reasons. To start with, leaving your investments where they are means you avoid things like trading costs, which can shrink your investments. A few pounds to switch an investment might not seem like loads now, but if you had that money invested instead and compounded it over the year it could become substantially more – an amount you’d notice not having.

Switching investments also means you’re out of the market – even if very briefly – and this is an added risk you’re choosing to take.The market might go down while you’re out, but you can quite easily miss out on growth too.

Little and often

Two of the most important skills an investor needs to have are discipline and patience. We’re hardwired to think in the here and now, and it can be difficult to make sacrifices in the near-term even when we know we will be rewarded for it later on.

Set up a direct debit and forget it. Saving little and often can be more practical than saving irregularly in large chunks. Regular contributions get you into the habit of saving so it becomes just another expenditure each month.

Avoid mistiming the market

The ‘set it up and forget it’ strategy can also help when markets start to drop. Large drops in markets are rare, but they do happen – and it’s these events that really provoke emotion and bring about rash decisions.

The gut reaction can be to sell your investments to avoid losing yet more of your money if prices do drop further still.

But in reality, this volatility tends not to last for long and the market will very often rally back towards its previous level. Keeping your contributions going through periods when the market drops means you’re buying at a lower price and, so long as the market recovers, this is no bad thing.

We saw this recently when the FTSE100 dropped by around 10 per cent in October in response to fears over the outlook for global growth, only to rally sharply as these worries receded – from the low point in October, the index has regained more than half of its October losses already.

Keep it simple

Successful investing can therefore be simple: Have the discipline to save regularly and the patience to leave your investments alone. Much like a watched pot never boiling, checking your investments everyday doesn’t always help.

Trying to make everything in life exciting just isn’t possible. Accept the things that will always be boring and enjoy those that aren’t. Less time spent trying to make investing more glamorous leaves you more time to what you actually want.

So leave the market to do the hard work for you.

Chris Williams is CEO of Wealth Horizon.