Thinking about investing can be daunting. Between the jargon (headwinds/tailwinds; beta versus smart beta: portfolio under-and over-weightings), and conflicting advice, it's challenging to weed through information and develop a solid, winning strategy.
Here's a tip to help steady your nerves: think about investing the way you think about cooking. Just like in cooking, investing has many options. Except instead of choosing between chicken, beef, or fish, you're choosing between stocks, bonds, mutual funds, etc. What you eat depends on how hungry you are, where you are, and what you prioritize. The same is true with investing.
And just like in cooking, when you're investing, it's good to have tome tried and true tips you can use to guide your meal.
Here are a few investing building blocks to help you develop the recipe that's right for your tastes!
Allocation, diversification, and rebalancing
Diversification is the practice behind the advice "don't put all your eggs in one basket." Allocation is a partner to diversification, and involves looking at security and investment links in broader context vs. looking at them in isolation. Rebalancing is exactly what it sounds like: adjusting your portfolio in strategic and informed ways to keep on track regardless of market activity and fluctuation.
Buy low, sell high.
This sounds like more jargon — but to actually follow this advice you may need to make choices that seem difficult , including buying an underperforming asset and selling an asset that's performing well. Underperforming markets are actually the best time to invest: lower prices mean you can acquire more of an asset, which better positions you for when the market goes back up. We are tempted to buy high because markets are good and our confidence is high. Similarly, we may feel compelled to sell low when markets are bad. It's important to push through these tendencies and make well-rounded decisions.