Before estimating the investment value that you might add or take away from your portfolio, you first need to determine whether your strategies are or are not likely to lead to optimal risk-adjusted investment returns.
This value estimation is separate from any hourly opportunity cost related to spending time on your investments versus an alternative use of your valuable time. When you combine an estimate of your value-added or value-diminishing investment contribution with the opportunity cost of your time commitment, you derive an estimate of your total investment wage or opportunity cost. For more on this topic, click here >> Calculating your investment wage and the opportunity cost of your time
Even if an individual investor feels a substantial amount of confusion about investing, he or she usually holds on to the hope that spending more time will increase investment returns.
This is only true if the strategies implemented actually add investment value rather than diminish portfolio value. Value generating strategies can positively offset the opportunity cost of the time you spend. If not, more time spent on poor strategies will just increase your shortfall.
To be value generating, individual investor activities must increase returns, lower costs, reduce taxes, and/or reduce risk. The 15 activities below are more likely to do this for you.
These 15 guidelines summarize personal financial planning and investment management practices that are more likely to benefit you and your family in the long run.
Spend much more of your time on managing your career and controlling your living expenses. These are the two most powerful levers that any individual controls related to the success of an investment program. The most successful investment programs always involve continuing additions from savings. (Click here >> Step 2 – Set your personal savings, earned income, and other financial goals) Become fully diversified (yes, FULLY diversified ALWAYS) by owning the very broad market in your portfolio (Click here >> Why is diversification valuable to individual investors?) Drive out all forms of investment activity designed to beat the market. Target a market return and be very happy if you get close to it. Most individual investors fall well short of earning a market return, because they chase past performance that does not repeat, and they pay much higher investment costs as they chase the mirage of superior investment performance. (Click here >> Can you really beat the securities markets?) Learn about [...]