In short, if you want to achieve financial independence, your odds are much higher if you can learn from these 5 lessons we just listed and avoid or minimize those common investor mistakes. And once you're done that, here are two important considerations that you SHOULD plan for:
First, inflation. When the prices of things you buy rise faster than expected (like snow!) you need more income to afford them. The best of purchasing power is arguably an individual's biggest risk in the long term. As such, you must own assets that can capture the growth of inflation.
And second are asset "bubbles." While there is no formal definition of what constitutes an "overvalued" market, we should be respectful of market history. Be mindful of investing too much of a portfolio in one asset class that is expensive by historical standards. Overweighting into a sector or market "bubble" can result in a large drawdown and can you back materially if/when prices revert back to long term averages.
As an example, the bubble in US large cap growth equities in the mid to late 1990's burst in 2000; what followed was a decade of a zero return for the S&P 500. This can apply to bonds too. After having a very good stretch, bonds became very expensive and as a result have posted lackluster returns over the past decade. In fact, the Vanguard Total Bond Market Index, which tracks the
bond fund in the world, has only averaged 1.64% over 10 years... Certainly, not keeping up with inflation.
In summary, keep your focus on long-term risks that will affect your investment plan such as inflation; be aware of inflated asset prices as well. And don't worry too much about short-term noise or about missing the "hot" stock that your neighbor told you about. Let your political views influence your portfolio. And certainly don't make emotional decisions about investing in "safe" (...although possibly highly illiquid and expensive) investments until the market volatility ends and the "dust settles." We never get an ALL CLEAR message for market bottoms.
Disclosure: This is not an offer or solicitation for the purchase or sale of any security or asset. While the information presented herein is believed to be reliable, no representation or warranty is made concerning its accuracy. The views expressed are those of NCM Capital Management, LLC and are subject to change at any time based on market and other conditions and NCM does not undertake to update or supplement its provision or any of the information contained therein. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable. There is no guarantee that the investment strategies advocated above will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision. Investment advisory services are offered through NCM Capital Management, LLC, an SEC registered wealth advisory firm headquartered in New Jersey. This communication is not to be construed or interpreted as a solicitation or offer to sell investment advisory services. For additional information about NCM Capital Management, LLC, you may request a copy of our disclosure statement as set forth on Form ADV. Readers are encouraged to consult with their own professional advisors, including investment advisors and tax/legal advisors. NCM Capital Management, LLC does not provide legal or tax advice. NCM Capital Management, LLC can assist in determining a suitable investing approach for individuals, which may or may not resemble the strategies outlined herein.
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