Guiding Principles to Sustainable Investing
Posted by John Posey
The investment approach I’ve discovered that delivers sustainable success is driven entirely by three guiding principles and one’s specific financial plan which I think can be useful to review specifically in times of heightened uncertainty.
In response to our human nature that always wants and appreciates reassurance especially when things seemingly begin to fall apart, I hope these principles serve as an antidote. The responsibility of staying disciplined to a prudent investment plan is uniquely our own and sometimes it requires gritting your teeth in the face of irreducible uncertainty. But I believe it to be absurd to make investment decisions based on anything other than our own specific circumstances and the very longest-term historical norms rooted in simple economic/financial logic for no other reason than it is the only sustainable method I’ve ever seen produce persistent success over time. The investment principles below are to act as a foundational guiding light to be thoughtfully considered as often as we consume the economic and financial media headlines of the day.
And it should be expressly noted that this approach is not at all driven by current external events – particularly events not specifically occurring in your own life. This cannot be over-emphasized. Sound principles with roots in undeniable evidence give way to prudent methods and strategies - I believe that to be fundamentally true now and always across virtually all practices and disciplines.
Following principles is like using a compass. The needle always points North as true as our guiding principles. However, the landscape is everchanging and we must live with what is beyond our control. I’ve consistently found the financially disciplined ultimately get the opportunity to experience the financial freedom they truly desire.
Over time (decades), stocks outperform bonds and bonds outperform cash.
Market timing to conserve or avoid loss is not a prudent long-term strategy.
Diversification is key to sound and sustainable investing.
Should you ever experience a crisis of confidence in a well-diversified, prudently constructed investment plan in service to your financial goals, I suggest you consider these principles and: 1) Deliberately decide if you accept it as the truth and 2) If it is the truth, are you behaving accordingly?
These investing principles remain unaffected by limitless external variables that fall into the category of things that may be important but are out of our control. Constantly worrying about things out of our control is one of the quickest paths to unhappiness and often a complete waste of energy. You are of little to no value to others in this headspace so take a permanent leave of absence from it. It’s simple, just not necessarily easy. It is the intersection of what matters AND what you can control where you can make a real impact.
Financial planning for the future is valuable. Market predictions are fickle and often downright irrelevant, yet many of us still pay attention to them and even sometimes seek them out. Be aware of the limited value and wasted energy those predictions will likely prove to be. For more material on predictions, read the Market Forecasting article.
For many, this is likely just a reconfirmation of what you already know, yet it never hurts to hear it again. Put the three guiding principles to investing in the forefront of your mind (particularly in less certain times) and go spend time on the things that really matter.
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