Timing the market is notoriously difficult, even for the most experienced investor. People often focus on trying to dodge the bad days but fail to realise that missing even a few of the best days can be equally damaging. The largest gains tend to occur during periods of extreme volatility and often follow large sell-offs. During these episodes inexperienced investors panic sell or just sit on the side lines. The key lesson is that to be a successful investor it's often better to take the rough with the smooth rather than trying to play the market in search of a quick profit.

1. Take the rough with the smooth

Many investment houses and brokerage firms profit when investors buy or sell shares. This leads to a lot of noise in the market and it is often difficult to detangle good information from bad. It is challenging to distinguish good financial ‘experts’ from bad, as they are often more concerned with self-promotion rather than providing good investment advice. As George Soros said, “if investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring.”

2. Drown out the noise

The longer you invest for, the better your chance of success. For example, from 1990 - 2016, the average investor will have had a turbulent journey - the dotcom bubble & financial crisis were 2 of the worst bear markets recorded. Yet over that period the return in a back-test of our moderate growth multi-asset portfolio would have averaged 7.4% per annum. That may not sound that great but €1 million invested in 1990 at that rate of return, would now be worth almost €7 million. The lesson is that the power of compounding tends to be the single biggest contributor to an investor’s success.

3. Time in the market, not timing the market

It is easy to focus on what can go wrong in the world and extrapolate these geopolitical events into investment returns. Yet geopolitical shocks (outside of world wars) tend to exhibit little or no relationship to returns. Last year was a case in point. Brexit and Donald Trump’s election as the US President threatened to send financial markets into a tailspin, but it never happened. In fact, markets rallied strongly in the second half of 2016.

4. Geopolitics (often) matters less than we think

Diversification is probably the most commonly quoted piece of investment advice. Yet unfortunately, time and time again people tend to over concentrate their investments in a specific stock or asset. The idea behind diversification is that it spreads out risk and therefore helps mitigate all kinds of developments, especially negative shocks. The reality is that no asset, stock, region, sector or currency will outperform all the time. Multi-asset funds, which divide their investments between different assets, such as stocks, bonds, cash, & property aim to reduce permanent loss of capital.

5. Build a robust portfolio

Instead of following the herd, investors should take their lead from the economic and business cycle. One of the few constants in investing is that all economies are cyclical – that is they expand and then contract. By focusing on the cycle, investors can determine the prospect for different assets and markets at the different stages, and importantly can avoid taking on excessive risk when the economy is showing signs of overheating just before a recession. Buying high and selling low is not a sensible investment strategy. Investing counter cyclically is.

7. Invest counter cyclically

Overpaying for investments is a common mistake. The most recent examples of this phenomenon were the housing bubble in the run up to the financial crisis. Private investors often do not have access to the same range of data as institutional investors so they often get caught out on price. This is true across all assets including the income yield for property investments, equity valuation metrics like price-to-earnings, or bond yields. Warren Buffett says “price is what you pay, value is what you get”. Consider the intrinsic value of an investment before putting your hard earned capital at risk

8. Price is what you pay, value is what you get

Emotion is dangerous when investing. Unfortunately, it is too easy to become emotionally attached to investments when they are increasing in value. We feel comfortable when we are invested & often actively look to add to winning positions. When the market is doing well it may seem that an individual stock will never go down & that we should hold more and more of it. The most successful investors take profits & rebalance their portfolio. Our experience shows that failing to take profits can result in ‘risk drift’ in portfolios.

9. Don't let your emotions cloud your judgement

“Irrational exuberance" was a phrase championed by former Federal Reserve Chairman Alan Greenspan to explain investor’s behaviour in the mid-to-late 1990s. Although it took a number of years for the bubble to burst, the phrase epitomises the tendency of investors to get most bullish just before a collapse. Quite often it’s wise not to follow the crowd, particularly if the fundamentals do not add up. Remember, when the herd is running towards the cliff, the one running in the opposite direction seems crazy.

6. Don't follow the herd

A common failing of investors is investing in the rear view mirror, chasing performance by buying more of an asset, sector or stock that has performed the best in the most recent time period. A large body of evidence tells us that this leads to underperformance in the long term. Assets that attract the largest amount of inflows subsequently underperform. Investors must accept that no strategy, investment or approach will outperform in every market environment.

10.Don't chase performance

We share what we believe are some of the most important rules that can help you to achieve your long-term financial goals, with a little help from Carl Richards. Carl is the creator of the weekly ‘Sketch Guy’ column in the New York Times and was the keynote speaker at our 2014 Annual Conference. His sketches are famous for simplifying some of the most complex and important financial concepts.

Investing Tips

10 Timeless Rules of Investing

An inverse ETF is an <a href="https://www.investopedia.com/terms/e/etf.asp">exchange traded fund (ETF) </a>constructed by using various <a href="https://www.investopedia.com/terms/d/derivative.asp">derivatives </a>to profit from a decline in the value of an underlying benchmark. Investing in inverse ETFs is similar to holding various short positions, which involve borrowing securities and selling them with the hope of repurchasing them at a lower price. An inverse ETF is also known as a "Short ETF" or "Bear ETF."

What Is an Inverse ETF?

<ul><li>An inverse ETF is an exchange traded fund (ETF) constructed by using various derivatives to profit from a decline in the value of an underlying benchmark. </li><li>Inverse ETFs allow investors to make money when the market or the underlying index declines, but without having to sell anything short. </li><li>Higher fees tend to correspond with inverse ETFs versus traditional ETFs. </li> </ul>

Key Takeaways

Many inverse ETFs utilize daily futures contracts to produce their returns. A <a href="https://www.investopedia.com/terms/f/futurescontract.asp">futures contract </a>is a contract to buy or sell an asset or security at a set time and price. Futures allow investors to make a bet on the direction of a securities price. Inverse ETFs' use of derivatives—like futures contracts—allows investors to make a bet that the market will decline. If the market falls, the inverse ETF rises by roughly the same percentage minus fees and commissions from the broker.

Understanding Inverse ETFs

An advantage of inverse ETFs is that they do not require the investor to hold a <a href="https://www.investopedia.com/terms/m/marginaccount.asp">margin account </a>as would be the case for investors looking to enter into <a href="https://www.investopedia.com/terms/s/short.asp">short positions </a>. A margin account is one where a broker lends money to an investor to trade. Margin is used with shorting—an advanced trading activity.Investors who enter into short positions borrow the securities—they don't own them—so that they can sell them to other traders. The goal is to buy the asset back at a lower price and unwind the trade by returning the shares to the margin lender.

Inverse ETFs vs. Short Selling

An inverse ETF is an exchange-traded fund that uses various derivatives to profit from a decline in the value of an underlying benchmark.

Investing

Exploring the Benefits and Risks of Inverse ETFs

Despite news headlines on life-changing investments on one stock item like GameStop, it is too risky to make short-term bets with sizable sums of money on what a stock is going to do next. Instead, some of the most respected investors in the world have long said the best way for everyday investors to make money is to invest in index funds and hold those investments over long periods of time.Most index funds offer low fees and will allow you to essentially buy the entire stock market. That way, if any one stock crashes it won't affect your portfolio.

Betting on a hot stock isn't worth it

The key to everyday investing is diversification, which means owning different types of investments to spread out the risk. You definitely want to own stock index funds because stocks over time have always offered the best return. You need investments that can do well when stocks are doing poorly. These include Treasury bonds and real estate funds.

Build a diverse portfolio

Checking in with a financial adviser is strongly recommended by experienced investors, but make sure you're speaking with a fee-only expert, who isn't receiving commissions for steering you into one investment over another. Once you find someone acting in your best interest, try to meet with them once a year or every two to three years. Find someone you can pay a flat fee for each visit. This will save you money in the long term.

Working with a financial adviser

There is no need to panic, even in times of big corrections in the market. With a diverse investment portfolio, you actually have an opportunity to make some extra money off of big swings in the markets by selling what has gone up in value and buying more of what's gone down.Don't panic and sell everything just because the stock market crashes and you see other people panicking and getting rid of their stocks. That can do irreparable harm to your portfolio. Buying high and selling low is not a good way to make money.

Rebalance your investments for stability

Investing in a smart way can get you set up for whatever the future may bring. But where to begin? Here are a few tips for those who are just entering the world of investing.

Stashed ideas

New To Investing? Here Are Some Common Mistakes To Avoid And Tips To Follow 

It is defined as a perceived seasonal increase in stock prices during January.
Analysts generally attribute this rally (a period of sustained increases in the prices of stocks, bonds, or related indexes) to two factors.
<ol>
<li>A price drop happens in December - when investors prompt a sell-off due to tax-loss harvesting to offset realized capital gains - followed by an increase in buying in January.</li>
<li>Investors use year-end cash bonuses to purchase investments in January.</li>
</ol>

The January Effect

The January effect was first noticed in 1942 but has been less pronounced in recent years. The hypothesis suggests that markets as a whole are inefficient. Efficient markets would not follow this effect.
Small caps - companies with a relatively small market capitalisation - are more affected by the January Effect than mid or large caps because they are less liquid.

Understanding The January Effect Hypothesis

Besides tax-loss harvesting and repurchases, and investors putting cash bonuses into the market, the January Effect is affected by investor psychology.
<ul>
<li>Some investors feel that January is the best month to begin an investment program.</li>
<li>Others think that mutual fund managers buy top performers' stocks at the end of the year and dispense questionable losers for appearance sake in the year-end reports.</li>
<li>Year-end sell-offs attract buyers interested in the lower prices.</li>
</ul>

January Effect Explanations

<ul>
<li>A study analysing data between 1904 and 1974 revealed that the average return for stocks during January was five times higher than any other month, particularly in small-capitalisation stocks.</li>
<li>Another study from 1972 to 2002 found that the Russell 2000 index stock outperformed stocks in the Russell 1000 index in January.</li>
<li>The stocks outperformed by 0,82% and underperformed during the rest of the year.</li>
</ul>
But it is suggested that too many people now time for the January Effect so that it becomes priced into the market, levelling out the effect.

Studies and Criticism

Money

January Effect

The Nasdaq (National Association of Securities Dealers Automated Quotations) is the oldest and largest electronic stock market globally. All its buying and selling occurs electronically and not on a physical trading floor. 
It is the second-largest stock exchange globally based on the market capitalisation of its listed companies.

Nasdaq overview

Nasdaq is technically a dealer market. Both buyers and sellers trade with a market maker in a specific stock or security.
<ul>
<li>3,889 listed companies trade on Nasdaq and represent 10 broad sectors or industry groups, mostly in technology, consumer services, and health care.</li>
<li>Nasdaq's listed companies combined are worth $11.23 trillion.</li>
<li>Over 4.5 billion shares are traded daily on Nasdaq.</li>
<li>Companies pay $47,000 to $163,000 in fees to be listed on Nasdaq.</li>
</ul>

Nasdaq facts

<ul>
<li>The Nasdaq was created in 1971 by the National Association of Securities Dealers (now known as FINRA). </li>
<li>At first, it was just a quotation system but began adding trading and transactional systems.</li>
<li>In 2002, Nasdaq became an independent, publicly-traded company.</li>
<li>In 2006, it became an SEC-registered national securities exchange.</li>
<li>In 2007, it combined with the OMX, the Scandinavian exchange group, to form the Nasdaq OMX group.</li>
</ul>

History of the Nasdaq

<ul>
<li>The Nasdaq Composite Index tracks 2,790 Nasdaq securities - almost everything except mutual funds, preferred stocks, and derivative securities.</li>
<li>The smaller Nasdaq 100 Index focuses on the largest, non-financial companies listed on the Nasdaq with over half in the tech sector.</li>
</ul>
The Nasdaq Composite is more influential and widely followed, while the Nasdaq 100 is viewed by traders and investors interested in futures, options, and exchange-traded funds.

The Nasdaq has two major indexes

Both the Nasdaq Composite and Nasdaq 100 use the same modified market capitalization weighting method: Each share's closing price (LSP) is multiplied by the total shares outstanding (TSO).
Share weights calculation: Each security's market capitalization is divided by the total capitalization of all index securities. Share weights for each stock are then multiplied by that stock's closing price. The total is divided by an index divisor that accounts for market fluctuations. The result is the Nasdaq average for that day.

Calculating the Nasdaq indexes daily average

Nasdaq's indexes have outperformed the S&P 500 (it tracks large-cap stocks), and the Dow Jones Industrial Index (the 30 largest US companies).
It outperformed because both Nasdaq indexes lean heavily into tech, consumer services, and health care - the top-performing industries in recent years.

Performance of the Nasdaq indexes

While you can try to duplicate the Nasdaq 100 or the Nasdaq Composite with individual stock purchases, it would be more efficient to invest in an index fund.
<ul>
<li>The Invesco Unit Investment Trust QQQ ETF is the most popular Nasdaq index fund and tracks the Nasdaq 100.</li>
<li>Fidelity's Nasdaq Composite Index ETF is a popular exchange-traded fund for investing in the entire Nasdaq composite.</li>
<li>For a mutual fund, look at the Fidelity Nasdaq Composite Index Fund.</li>
</ul>
Nasdaq is also a public company that you can invest in. It trades as Nasdaq Inc.

How to invest in Nasdaq stocks

Nasdaq is the world's largest electronic stock exchange whose indexes, the Nasdaq Composite and the Nasdaq 100, are bellwethers for the tech sector.

10 Timeless Rules of Investing

Exploring the Benefits and Risks of Inverse ETFs

New To Investing? Here Are Some Common Mistakes To Avoid And Tips To Follow

January Effect

What is the Nasdaq? Understanding the global stock exchange that's home to the fastest-growing, most innovative companies

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