25 Tips from 25 Years of Investing

By Len Hirsh, MBA, CFP®, AIF®
Financial Advisor

As a Financial Advisor and CERTIFIED FINANCIAL PLANNER™ professional, I’ve learned a lot about investing over the last 25 years, and here are 25 tips I think all investors should keep in mind:

1. Markets are unpredictable. What happens on daily basis is unforeseeable, and no one really knows what will happen next. What we do know is that…
2. Volatility is normal. Markets usually experience at least one big pullback every year, and one massive pullback every decade. Even the beloved S&P 500 index experiences an average intra-year decline of -13.8%. So, try to expect corrections and recessions, and to prepare for them instead of fearing them. In other words…
3. Don’t sweat the small stuff. Your investments will inevitably experience short-term movements, but the gains of a long-term investor come from a market movement that occurs over many years. What you want to do is…
4. Focus on time in the market instead of market timing. History has shown that the majority of realized returns on stocks occur over a very small percentage of trading days, and you don’t want to be on the sideline when this happens. If you’re consumed with trying to buy when the market is low, and sell when the market is high, you will likely just be out of the market on its best-performing days.
5. Past performance is old news. Moving averages, historical performance charts, head-and-shoulders patterns, and resistance levels actually tell you nothing about what will happen next. Don’t inflate their importance. Chasing performance could cause you to underperform the very funds you’re investing in if you buy them near the peak or sell them near the trough.
6. Don’t react to yesterday’s news. If you’re responding to – or acting upon – something that happened yesterday, you’re probably too late to capitalize on the news. Markets are very fast and very efficient, and it might help to…
7. Tune out the noise. Take what you hear from the media with a grain of salt. With the enormous volume of information surrounding investment markets these days – and with so many media outlets competing for investors’ attention – there is a prevalence of overly-dramatic headlines and intentionally-conflicting viewpoints solely intended to capture your attention. Instead…
8. Look at the big picture, and avoid becoming fixated on the wrong details, such as the performance of one investment instead of that of the overall portfolio, or your latest returns relative to those of your peers rather than within the context of your goals.
9. Maintain a long-term time horizon. The best way to be successful with investments is to establish a long-term plan that suits your age, risk tolerance, and level of wealth. Then stick to it. It’s a marathon (not a sprint), and an investor who flounders between different strategies will probably experience the worst of each.
10. Be unemotional. Successful investors remain confident in their established plan, never panic-selling and simply responding to market forces with calculated reason even when times get tough. They allow the greed and fear of others to play into their hands, and they like to…
11. Be contrarian. Successful investors sell high and buy low because they cautiously take profits when others are greedy, and they only act greedy when others are fearful (ie, when things have gone on sale).
12. Don’t put all of your eggs in one basket. No single asset class or investment vehicle performs well all the time (and this includes the U.S. large-cap, tech stocks like FAANG). Limiting your downside exposure through diversification (geographically, across the growth-value spectrum, and among market cap size) is perhaps the only investment concept that truly works for everyone, and there are some great tax-neutral and/or tax-sensitive ways to diversify away from – or pare down – concentrated stock positions. At the same time…
13. Don’t own too many names. Securities should be owned with conviction. It is better to have a few positions you like and understand well, than to diversify merely for the sake of diversification and to thereby end up closet-indexing. There is no sense investing more money into your 35th best idea. Instead, you should…
14. Invest in things you know. If you do not understand an investment, stay away from it. Focus instead on what you know, use, and need. Successful investors will not purchase a stock unless they understand the economics of the industry and can reasonably forecast where a business might be in five to ten years. A good place to start is to…
15. Focus on quality. If you center your attention on companies with sustainable competitive advantages (barriers to entry, protected intellectual property, management competence, steady cash-flow growth, etc.), you will find firms that are much more likely to have higher earnings – and stock prices – in the future. Then, all things equal…
16. Look for value. The difference between a great stock, and a great investment, is the price you pay, but…
17. Don’t overemphasize the P/E Ratio. A lot of investors place great importance on stocks’ price-earnings ratios, but placing too much emphasis on a single metric is ill-advised. P/E ratios are best considered along with other analytical processes, because a low P/E ratio doesn’t necessarily mean a security is undervalued, and a high P/E ratio doesn’t necessarily mean a company is overvalued. That advice is for stocks, and when it comes to funds…
18. Beware of underlying expenses. Many mutual funds have operating expense ratios, distribution fees, shareholder-servicing fees, account-manager fees, or revenue-sharing fees which can eat away at your profits. All things equal, ETFs (exchange-traded funds) are usually a better bet than mutual funds in terms of tax efficiency, fees, and liquidity. If you do use mutual funds, try to get the institutional (I) share class.
19. Don’t be ruled by taxes. Weighing tax considerations above all else (aka, “letting the tax tail wag the dog”) is a dangerous mindset that can lead to misguided decisions. Remember that paying taxes – because you’re realizing gains through a sale – simply means you made money on the investment. That’s a good thing.
20. Strongly consider using alternatives by looking at investment strategies outside of traditional stocks, bonds, and cash. There are some great ways to improve yield (and bring down market correlation) on the fixed income side of your portfolio with things like direct lending, middle-market lending, private credit, private real estate, and/or ILS (insurance-linked securities) funds. On the equity side, you can add noncorrelated, small-cap growth exposure through private equity funds that invest in pre-public companies, or you can look at downside protection via a cap-and-cushion hedging approach using things like defined-outcome ETFs (exchange-traded funds), structured notes, or option overlays like covered calls or collars.
21. Overestimate your retirement needs. Consider how much money you’ll need for retirement. Then double it. Now you’re closer to reality. Next, find a Certified Financial Planner® who can use sophisticated retirement planning software to perform “scenario analysis”, a process of looking at the potential financial impact of various life decisions such as delaying social security, downsizing your home, moving to a state with no income tax, or systematically converting traditional IRA assets to a Roth IRA before RMDs (Required Minimum Distributions) kick in at age 72.
22. Understand estate planning. A good estate plan enables you to efficiently transfer assets to family members and/or your favorite charitable organizations in a way that accurately reflects your goals and values. Just make sure to regularly review and update your plan as your life circumstances change and tax laws evolve.
23. Always work with a fiduciary. A financial advisor should only do – and be allowed to do – that which is in the best interest of his or her clients. If an advisor works for commissions, or is compensated differently for different funds/strategies that he or she recommends, that can be a big conflict of interest.
24. Get the most bang for your buck. If you are going to pay for an advisor, you might as well find one with excellent credentials, experience with legacy/estate/tax planning, and a solid understanding of everything from insurance and annuities to college planning and charitable giving. Not to mention, an open-door, open-call policy so that you can always reach someone at the firm with any question at any time.
25. Be open to advisors’ value. Novice investors might evaluate an advisor’s worth by simply comparing portfolio performance to that of a market index. Successful investors, on the other hand, know that good advisors can add three to four percentage points (known as advisor alpha) over time – and especially in moments of crisis – through thoughtful advice on asset allocation, portfolio-rebalancing, spending/withdrawal strategies, product cost-cutting, and behavioral coaching around investors’ emotional tendencies.

You can learn more about Len Hirsh by clicking here, or if you would like to schedule a complimentary, introductory meeting, phone call, or Zoom conference with Len and his team click here.

Opinions expressed here are the authors’ and do not necessarily represent the opinions of SEIA. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice. Additional important information can be found at seia.com/disclosures. SEIA is an SEC‐registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Securities offered through Royal Alliance Associates, Inc. (RAA) member FINRA/SIPC. Investment advisory services offered through SEIA, 2121 Avenue of the Stars, Suite 1600, Los Angeles, CA 90067, 310‐712‐2323. RAA is separately owned and other entities and/or marketing names, products or services referenced here are independent of RAA. (CA Ins. License Len Hirsh #0L46886).

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