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The Principles of Sound Investing - Part 2

The Principles of Sound Investing - Part 2

| April 11, 2024

“You got to have faith a, faith a, faith,” George Michael wrote in his 1987 hit song. He may have been singing about relationships or religion, but nowhere does this sentiment ring more true than when it comes to investing.

Having faith in the stock market is critical for becoming a long-term investor for several reasons:

Belief in the Market's Long-Term Growth: Historically, despite short-term fluctuations and occasional downturns, the stock market has demonstrated long-term growth. Having faith in this overarching trend helps investors maintain confidence in their investment decisions over time.

Patience and Discipline: Faith in the market helps investors stay patient and disciplined during periods of volatility or downturns. Understanding that market corrections are often temporary and long-term growth tends to prevail encourages investors to stay the course with their investment strategies. We’ll discuss these in much more detail over the next two weeks.

Avoiding Emotional Reactions: Belief in the market's long-term potential helps investors avoid making emotional decisions driven by fear or panic during market turbulence. Emotional reactions can lead to selling investments at inopportune times or abandoning a well-thought-out investment plan. These behaviors are why Warren Buffett once said, “The investor’s chief problem - and even his worst enemy - is likely to be himself.”

Commitment to Long-Term Goals: Having faith in the market allows investors to focus on their long-term financial goals rather than being swayed by short-term fluctuations. This commitment to long-term objectives encourages consistency in investment strategies and helps investors navigate various market cycles.

Benefiting from Compound Growth: Long-term investors who have faith in the market allow their investments to benefit from the power of compounding returns over time. Investors can harness their investments' exponential growth potential by staying invested and reinvesting dividends.

Confidence in Economic Growth: Faith in the stock market often reflects confidence in the underlying economy's ability to grow over time. Investors who believe in economic progress and innovation are more likely to view market downturns as temporary setbacks rather than permanent declines.

Overcoming Short-Term Volatility: Markets are inherently volatile in the short term, but faith in the market's long-term trajectory helps investors tolerate this volatility without succumbing to fear or uncertainty. Instead, they focus on the bigger picture and remain committed to their long-term investment strategies.

Faith in the stock market is critical for becoming a successful long-term investor. It fosters patience, discipline, and confidence in the face of uncertainty, ultimately leading to better investment outcomes over time.

Until next time…

One last thought: We believe an educated investor is an empowered investor. If you like what you’ve read and think your friends and family can benefit as well, please share.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. 

All investing involves risk, including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Dollar-cost averaging involves continuous investment in securities regardless of fluctuation in the price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.