The third step is to adopt a code of financial principles through which you filter all decision-making input. Thankfully, when it comes to investing, these universal truths are fairly well known. Here are several that I believe few would disagree with:
- Never take an asset class to zero. Diversification is a good thing. Maybe you under- or over-weight an asset class based on your thinking, but recognize that you are just as likely to be wrong.
- If someone tells you they know what the future holds—be very skeptical. There are millions of market opinions–some informed and some not—but all are guesses. Do not make important investment decisions based on these.
- Get-rich-quick ideas are nothing more than gambling or speculation. It may be okay for a small portion of your investable assets, but it is not a rational long-term wealth strategy.
- Everything in life evolves and changes. Be wary of anyone who says that their way is the only way and that all you have to do is follow a formula for the next 40 years to succeed. This is just another form of soothsaying, even though it may be accompanied by a spreadsheet showing you an impressive past. I can assure you that no one knows what the next 40 years will hold. Never use prior performance as a decision guide for anything.
So, relax and enjoy being a human being. But if you want to learn the discipline of investing, devote the time to learning the basic guidelines that can help you purge human bias from your investment decisions. Remember, almost nothing in life is binary. We live in a complex and ever-changing world, and I am thrilled that is the case.
Frank Muller is executive vice president and head of distribution for Behringer. He also serves as chief executive officer and president of Behringer Securities LP.