Paul R. from Evansville, IN asks: Hi Mitch, I’m recently retired and am taking a greater interest in investing. Don’t worry – I don’t plan on becoming a day trader or anything. I’m just wondering what you might consider some best practices for monitoring trends/news and managing my portfolio?
Thanks for writing, Paul. My biggest piece of advice to you is probably not as technical in nature as you were hoping for, but here it is: Less is more.
One of the biggest obstacles to successful investing, in my opinion, is ‘information overload.’ Investors often get wound up in day-to-day events and news stories, which frequently err on the side of sensational. The news you might hear on CNBC, for instance, tends to focus on stocks or other securities that are either ‘hot now!’ or possibly headed for a major downturn. It’s either a big opportunity or a dire warning. Rarely do I see pundits urging investors to keep their cool while maintaining a well-diversified, long-term view to portfolio management. That type of advice is way too boring, and it doesn’t sell newspapers.
But the irony is that it’s often the right approach to follow. In your case, I’d offer you three tips that I believe can help you become a more engaged, informed investor:
1. Become a “Macro Guy” – this is a term I just made up, but it speaks volumes for how to approach every day news and economic events. ‘Macro guys’ are those who focus on trends, not day-to-day movements. Being a macro guy means focusing on economic data releases, earnings reports, and other key economic factors like trade deals. The key to being a good macro guy isn’t just reading the reports when they come out, however. It’s about seeing how the data fits into the longer-term trend. The opposite of a macro guy is an investor that looks at day-to-day movements in securities prices based usually on event-driven factors. While useful for portfolio managers, this type of analysis is not very beneficial to long-term investors, in my opinion. There’s a dizzying amount of new information every day, but much of it doesn’t affect the long-term trend of the markets. And that’s what matters to the long-term investor.
2. Avoid the Hot Trends – the more you start paying attention to financial news, the more exposed you will become to the next ‘hot’ trend in financial markets. Think cryptocurrencies and FAANG stocks, for instance. In my view, the more investors hear about wonderful performance in a particular category, the more they are inclined to buy-in and potentially abandon their long-term approach. The potential problem is that investors who do so are vulnerable to buying into a trend that may have already run its course, meaning we see a lot of investing at or near the top.
3. Become an Ardent Proponent of Diversification – in my opinion, investors who want solid long-term, risk-adjusted returns need look no further than what I believe might be the oldest trick in the book: a diversified portfolio of stocks. How you diversify that portfolio is up to you – which sectors, styles, securities, or size classes to overweight and underweight. At Zacks Investment Management, we base our diversification decisions first by understanding the investors’ needs and goals. Then on top of that we layer our market outlook to determine what types of securities we want to purchase in the portfolio, but we almost always take a wide-ranging approach that might include several sectors, regions, and sizes of companies that we want to own1. And we are constantly evaluating trends to determine where we want to overweight and underweight. But the theme of diversification exists throughout our process and approach.
4. Know Your Net Worth – Lastly, it’s always important to know your net worth. Whether you are just starting out or a long-term investor, knowing your net worth is important to your financial well-being.
Calculating your net worth can give you a better idea of where you stand in terms of your long-term investment goals. From there you can look at what strategies, risks and additional factors will have the most beneficial effect on your investments long-term.
To help you understand how to measure you net worth, download our guide Measuring Your Net Worth. Simply click on the link below to get your copy today!