Advice Doesn’t Have To Be Complex To Be Effective

It is no wonder people can feel overwhelmed by investment and financial planning decisions. There is the daily stream of conflicting information: Economic news, world events, technological breakthroughs, natural disasters, etc. As stories unfold, investors question choices, past and present. How does one filter out the noise and identify what is essential to long-term investment success?

Hopefully, your answer is, “My investment advisor (Vista) takes care of that for me.” However, if you are looking for easy tips to pass on to family and friends or just a bit of validation from independent experts, two of our favorite writers/authors have each recently published their own lists of simple guidelines.

Charles D. Ellis Ph.D., CFA has taught advanced investment courses at Yale and Harvard and written over a dozen books including one which is required reading at Vista, “Winning the Loser’s Game: Timeless Strategies for Successful Investing.” Dr. Ellis recently shared with readers the contents of letters he wrote to each of his young grandchildren, to be delivered when they are older. Among the many pearls of wisdom, were the following:

  • Saving is always the first step toward investing. Time is important too. In combination, time and saving—compounding—can be very powerful.
  • While the past does not guarantee the future, understanding investment history is certainly the best way to understand how best to invest.
  • Remember that “Mr. Market”—a colorful, tricky rascal—is always trying to make you greedy or fearful so he can trick you into buying or selling by moving stock prices around. Don’t let him interfere with your steady focus on the discipline and serious work of building long-term investment value.
  • Since nobody can know which companies and stocks will do “better,” always diversify your investments widely.
  • When stock prices go down, that’s actually good news for long-term investors, because you can buy more shares with the same dollars.
  • Unlike active managers, index funds reliably and consistently achieve their investment objective—ever day, every month, every year, and every decade.
  • Most investors who do not succeed have made at least one—and sometimes all—of three “classic mistakes”: Trying to beat the market, borrowing on margin to really beat the market, and buying after stocks have gone way up or selling after they’ve gone way down.

Jonathan Clements is a financial writer perhaps best known for his regular columns appearing in the Wall Street Journal. Mr. Clements was very direct in stating his “firmly held financial beliefs” in a recent column. The following stood out among his many other excellent points:

  • Saving diligently is the way everyday Americans get rich. If you make sure you save enough each month, there is no need to budget. If you are not saving at least 10% of your yearly income, you shouldn’t be buying new cars or second homes.
  • Carrying a credit-card balance is an act of financial foolishness.
  • You are highly unlikely to make money from your home’s price appreciation once you figure in inflation, homeowners insurance, maintenance and property taxes. Paying down a mortgage, however, is a great low-risk investment which can result in substantial financial freedom. Everybody should strive to be mortgage-free by retirement.
  • If you’re the family’s main breadwinner, you should probably delay claiming Social Security until age 66 and perhaps age 70. A larger Social Security check helps protect against the risk of you and/or your spouse living longer than you planned for.
  • You have no clue where stocks and interest rates are headed—and neither does anybody else.  Instead of forecasting returns, investors should devote their efforts to cutting investment costs, trimming taxes and managing their portfolio’s risk level.
  • Think more money will make you happier? Consider this: Most folks grow wealthier over time, which means today you’re likely richer than you’ve ever been. But you can probably think back to a time when you were at least as happy as you are today—and maybe happier.

We recommend taking the time to read anything you run across written by Charles Ellis and Jonathan Clements. Their quotes shared here reflect beliefs we hold in common. These simple guidelines, when applied consistently over time, can take you far in this seemingly complex world.

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