Spooked by the stock market again? You're not alone. It's hard not to worry about your portfolio with headlines blaring about inflation, high interest rates, spiking oil prices, wars and heightened geopolitical tensions.
But now isn't the time to let your emotions be the decision-maker when it comes to your money.
These are the times to fall back on time-tested investment principles. And to heed the lessons of experienced investors who have lived through a bear market or two.
Wisdom In The Stock Market
Lessons learned by other investors can help you tune out the noise, stick to the plan and increase chances of successful investment outcomes. "These lessons are not some kind of secret code," said Mark Riepe, head of the Schwab Center for Financial Research.
That's the takeaway from a recent survey by Charles Schwab of more than 3,000 clients who were asked to share the lessons they've learned over time. The Wisdom of the Crowd survey, which honors the firm's 50th anniversary, suggests that the so-called "dumb money" may be smarter than they're given credit for.
"I hear regularly from clients, many who started with us at the beginning, and they tell me that, more than anything, discipline, patience, and learning from the occasional mistake pay off," said Schwab founder and co-chairman Charles Schwab.
So, with financial markets and the world turning volatile yet again, there's no better time to go back over the investment basics that are key to financial success.
Be Patient
Few people will get rich overnight, unless they win the lottery, receive a jumbo inheritance, or are lucky enough to start a business and sell it for big bucks. Amassing a fortune in a 401(k) or brokerage account takes time. It also takes discipline, persistence, early and regular investing, and sticking to the long-term game plan no matter what the market is doing.
In fact, respondents to Schwab's survey say "be patient" has been the best investment advice they've received. Schwab investors also cited "patience through volatility" as the No. 1 contributor to their most successful investment.
"There is so much uncertainty in the world," said Riepe. "Are we going to have a recession or not? Will artificial intelligence (AI) blow up the world or transform it in a positive way. It's very hard to predict when these things are going to happen or what the implications will be. A patient investor is not chasing every wiggle in the market. By focusing on the long term, (a patient investor) can ride out these inevitable ups and downs in the market and take advantage of the long-term growth of the economy."
Riepe passed down the be-patient advice to his daughter, now a junior in college. At the start of her freshman year, she worried about how the family would foot the expensive tuition bill. So, Riepe says he pulled out the 529 college savings statement to show her how her college savings account grew over time with the help of steady contributions, solid market returns and compounding.
"I said, 'Ok, here's how much we contributed. Here's the current account balance. See how the lines diverge?'" Riepe recalled. His daughter got it. "Oh, wow," she said, "anybody can be an investor."
Slow And Steady Wins The Stock Market Race
It appears that investors are getting the stay-the-course message loud and clear. Nearly nine of 10 (86%) respondents to the Schwab survey identify with the deliberate and steady tortoise not the aggressive and scrappy hare (14%).
Swinging for the fences, most experienced investors have learned, often leads to strikeouts, or investment losses.
That's probably a good thing because shooting for overnight riches means taking a lot of risk, says Riepe.
"To make it happen overnight, requires you to take levels of risk that the vast majority of people are not going to be comfortable with," said Riepe.
The good news? When asked how they would invest $100,000, 87% of investors said they would focus on slower and steady growth in the long-term versus just 13% who said they'd take bigger risks for short-term gains.
Stick With Proven Investments And Avoid Fads
Sure, jumping on the cryptocurrency, NFT, or meme stock bandwagon looks like a surefire way to get rich quick. By comparison, a diversified S&P 500 index fund looks boring.
There's one problem with chasing fads or the new hot thing on Wall Street?
"It's hard to get in on the ground floor," said Riepe. It's also very hard to identify which new investment offering has legs and when they will skyrocket. As a result, by the time an individual investor gets into a hot, new asset class it typically has already had its huge price pop. "And you're left with nothing" when the price of the asset deflates, said Riepe.
Putting your money in a proven investment, such as the S&P 500, offers much better upside odds and a lot less risk, says Riepe.
"When I think about the S&P 500 or any broad-based index fund ... they're a bet on the growth of these companies and the long-term growth of the economy and an investor participating in that growth," said Riepe. And to be able to gain exposure to 500 quality stocks in a single investment and pay an expense ratio of like 0.03% is a no-brainer. "It's a great deal," said Riepe.
Billionaire Warren Buffett has long recommended S&P 500 index funds for everyday investors who don't have the time, skill, or desire to invest in individual stocks.
It appears investors are comfortable taking advice from the Oracle of Omaha. Asked if they could only use one investment product for the rest of their life, what would they choose, 78% of survey respondents said they'd go with a broad market index fund. Only 12% said they'd take on the risk of owning one individual stock. Just 5% chose cash, and even fewer (4%) opted for an annuity. Just 1% chose holding cryptocurrency for life.
Do Your Homework
A key to investment success is doing your homework. Indeed, owning stocks without doing the proper research is akin to buying an insurance policy and not knowing what it covers, says Riepe.
In fact, a lack of research was cited as the No. 1 reason why Schwab survey respondents' least-successful investment turned out to be a clunker.
"You need to know what you own and understand what you own," said Riepe.
Doing the research before you push the buy button does three things for you, says Riepe.
"One, you can figure out if the investment is a good fit for you," said Riepe. "Secondly, you'll be aware of any risks that may be out there. And, thirdly, it helps you figure out what's a reasonable percentage of your total portfolio that you should be putting into this investment or asset class. You can't answer any of those questions unless you do a certain amount of research on the investment."
Learn From Your Mistakes
No investor is perfect. We'd all be retired and living on our own island if every investment was a big winner. But that's not reality.
What is real, however, is learning from the mistakes you've made in the stock market. Even the most long-tenured Schwab investors admit that it took three negative market events to learn to weather market volatility.
Analyzing how you reacted during say, the 2000-02 dot-com stock crash, or the 2008-09 financial crisis, or the short-lived Covid-19 bear market in 2020 can provide useful insights into how to best manage through extreme market volatility. It's also a way to identify miscues, such as bailing out of stocks at the bottom and missing the recovery. Or not buying when stocks were selling at depressed prices.
"Yeah, investors can learn from their mistakes," said Riepe. "If you've had the benefit of experience then you have a better chance of not repeating your mistakes."
And there's one more piece of wisdom you can learn from Schwab's clients. Knowledge is power. Nearly six of 10 (59%) of survey respondents wish they had more knowledge when they first started investing.
