How to Invest Like a Pro
Dana here.
Everyone wants to invest like a pro. It sounds glamorous and profitable. But like so many of the most rewarding things life has to offer, when you get into the nitty-gritty details it’s a lot of work. It requires patience, discipline, commitment, and experience.
I believe what everyone really wants are the results they imagine investing like a pro can deliver. But they don’t necessarily want to do the work that professionals do to learn how to invest like one.
Let’s take a look at what results are possible and the work required.
What is possible?
While it’s tempting to think pro investors watch their account balances steadily and continuously rise, that isn’t reality. Can you think of anyone you consider to be a professional who got there without failure, setbacks, and tumultuous experiences?
Let’s take pro athletes as an example.
In baseball, .300 or higher is considered an excellent batting average, with the top 50 hitters of all time posting averages ranging from .3196 to .3662. That means the best hitters miss 60-70% of the time.
In football, the best quarterbacks complete 60-70% of their passes. That means they miss 30-40% of the time.
So what about investing? Is there a statistic to use that defines success? Is it beating a benchmark? Or having more up years than down years? Or do you measure in days? This question gets to one of the first problems of investing like a pro, defining what success is.
For the average person approaching retirement, we define success as an investing approach that gives you a high degree of certainty that you’ll have the lifestyle you want for as long as you are on this earth. That is a very different definition of success than trying to beat the S&P 500.
If you are looking for something more concrete, well, most stock pickers will tell you they are simply looking for more winners than losers. Put another way, the best investors in the world will only be right 60% of the time. That means 40% of the time, they miss.
So if you think investing like a pro means avoiding downturns and losses, think again.
What about the work required?
If you’ve ever watched The Last Dance, the Netflix documentary on the Chicago Bulls and Michael Jordan, then you know it wasn’t all uphill and what they did took an extraordinary amount of practice and effort.
If you want to be a pro, get ready to study, practice, and study and practice some more. But first, you’ll need to decide what discipline to study.
Some investment professionals use technical analysis, studying charts and patterns; these are typically traders who don’t plan on owning an investment for long. Some use fundamental analysis, reviewing financial statements and price-to-earnings ratios. They usually intend to hold an investment for a longer time frame. Then there are the economists; some who study macroeconomics and some who focus on micro factors. There are the quants who use mathematical models, and behavioral finance analysts who look at trends and consumer sentiment patterns. And there are asset allocators who choose groups of investments based on their characteristics.
At Sensible Money, we are asset allocators. We look at the expected risks and returns of various investment types and match them to each client’s intended hold time and each account.
For example, a Roth IRA, as long as it won’t be tapped for spending needs in the next 10-15 years, will likely be invested quite aggressively, positioned to capture long-term returns.
An IRA that we draw retirement paychecks from may have a large allocation to low-volatility funds and bonds – safer choices that prove quite useful during times like March of 2020.
When it comes to the investing approach we use, we are knowledgeable, disciplined, and experienced. We use a consistent methodology and process suited toward the long-term outcomes needed.
What we don’t do is abandon our methods based on the latest headlines. We don’t panic-sell when markets tumble, as we know they inevitably will, or panic-buy when they soar for fear of missing out. Those emotionally-charged decisions are exactly the sort a professional investor scrupulously avoids.
Suppose you have a sensible definition of success, a chosen methodology, and the knowledge, discipline, and experience to execute it consistently. In that case, you are well on your way to investing like a pro.
On the other hand, if making investment decisions causes anxiety, stress, or is something you don’t want to or enjoy putting the time into, you are likely better off hiring a professional to do it for you. If that’s you, we’re here to help.
We work with clients in 27 states and offer a complimentary discussion where we explain what we do so you can determine if it is a good fit for your needs. To schedule a time, please complete our Pre-Meeting Questions, and we’ll reach out via email.
Our next free, live webinar, How to Make a Retirement Income Plan, will be held on Thursday, January 21, 2021!
How much will you need to retire, and where will it come from?
In this class, we will show you how make a detailed retirement income plan by creating a series of timelines that chart out your future income and expense. You will see how you can put together a crystal-clear picture of your future retirement income. We will go over:
- How to make a retirement budget and the most commonly overlooked expenses
- What a future income timeline looks like
- How to calculate how much you will need to withdraw each year during retirement
- Mistakes people make with their assumptions about inflation and rates of return
- How to see if your retirement money will last
We will leave plenty of time for question and answers at the end.
When: Thursday, January 21, 2021 5pm AZ/ 6pm CST/ 7pm EST
You can register at How to Make a Retirement Income Plan
Podcasts & Video
The New Retirement Podcast
In this podcast Dana talks with Steve Chen about planning for retirement.
Listen Here: Retirement Income Planning
Control Your Retirement Destiny Podcast
Download and listen to the Control Your Retirement Destiny podcast at:
Sensible Money in the News
Investopedia's top 100 advisors, including Sensible Money’s Founder and CEO, Dana Anspach, share their predictions for 2021 in this article: "Financial Advisors Share Their Predictions for 2021"
Dana also contributed to this azcentral.com article: "When setting your financial goals for 2021, consider these lessons from pandemic".
Dana also shared some thoughts on retirement saving in this article from MoneyTalkNews.com: "6 Competing Retirement Investing Goals and How to Balance Them".
Financial Sense is an almost-monthly publication of Sensible Money. It's about financial planning and smart money decisions, not sensation and hype. You know.... sensible.
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