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8 top investing tips

Ben Johnson, CFA  |  16 Apr 2019Text size  Decrease  Increase  |  
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Six positive behaviours and two you should avoid in keeping your portfolio growing

Sticking to what you know, keeping a written plan and tuning out unnecessary market commentary are among these top investing tips from Ben Johnson, director of passive strategies, Morningstar US.

He outlines six positive behaviours you should practise and two you should avoid in helping ensure your portfolio keeps growing, even within a more difficult  market environment.

1. Save

You can't invest money until you've saved money. Saving is all the more important in the context of the depressingly low expected returns we face today. The market likely won't do the heavy lifting for you over the next few years, so you will have to shoulder more of the burden.

2. Keep it simple

Don't stray from your circle of competence. It's all too easy to be lured outside your wheelhouse by friends, neighbours, or marketers. Complexity is costly and rarely yields benefits to the consumer. This applies to investment products, home appliances, you name it. The further you stray from your circle of competence, the more likely you will get lost.

3. Minimise costs

Fees subtract directly from your investment returns. Be stingy when it comes to the price that you pay for investment products, as well as the price you pay for advice.

4. Be tax-aware

Don't give the tax office any more of your money than you have to. Look for tax-efficient investments such as exchange-traded funds, and consider employing tax-loss-harvesting strategies, which involve selling securities at a loss to offset capital gains tax liabilities. 

5. Keep a decision journal

Scribble some notes to document the reasons behind your buy and sell decisions. This will keep you honest, help you learn from your mistakes, and give you a more sober view of the underpinnings of your successes. Was this down to skill or luck?

6. Set aside some "funny money"

Allocate around 5 per cent of your portfolio for dabbling purposes. Use it to buy that hot stock your neighbour told you about.

You'll win some and you'll lose some, but most importantly, you might learn some valuable lessons and prevent yourself from doing silly things with your serious money.

7. Try to avoid overpaying

Yes, this is just restating number 3 above, but the importance of keeping costs under control cannot be overstated.

8. Look

Try not to pay too much attention to what is going on in the markets and how they are affecting your portfolio on a day-to-day, week-to-week, or even month-to-month basis.

Turn off the TV and maybe pick up a good book instead: I recommend Jack Bogle's Little Book of Common Sense Investing.

This is exceedingly difficult, but tuning out short-term noise can keep you focused on your long-term goals and prevent you from tinkering with your portfolio at exactly the wrong times.

 

is director of global exchange-traded fund research for Morningstar.

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