MND: Trade Sparingly and Invest for the Long Haul

Here's another post in our series on the learnings from the book The Millionaire Next Door. A quote from page 100:

Nearly all (95 percent) of the millionaires we surveyed own stocks; most have 20 percent or more of their wealth in publicly traded stocks. Yet you would be wrong to assume that those millionaires actively trade their stocks. Most don't follow the ups and downs of the market day by day. Most don't call their stock brokers each morning to ask how the London market did. Most don't trade stocks in response to daily headlines in the financial media.

In other words, these people are in it for the long haul. They know that over a long period of time, the stock market will go up (or at least it has historically, so the odds are it will continue to do so). As such, they consistently invest monies into the market, ignore the noise, and watch their portfolios climb.

This is what I do. I invest every month (through my 401k as well as automatic transfers to an investment account), mostly in index funds tied to the overall market's performance. In addition, I ignore the financial media -- in part. I say in part because I ignore what they "advise" or what they say is going to happen with the market. Why? Because they are almost always wrong -- at least in the long term. So I do the opposite of the conventional wisdom. When things are bad and others are selling, I'm buying. When there's a run up, I hold tight and invest my regular amounts (I hardly ever sell). This strategy has been quite successful for us throughout the years.

Comments

[Dr. Artfredo C. Abella Ph.D - C. O.A.- Philippines]

Investing in stocks with the intention of becoming rich quickly will be debilitating. One must invest in stocks with the intention of becoming a part owner of the company. Buy during bear season and sell during bullish times is still a sound advice before investing in stocks. Over long periods of time stockholders will always win the stock market for as long as they invest in sound and stable companies. Investigate the financial profiles of companies that you intend to buy stocks before parting with your money - remember it is your money and nobody is going to determine your financial abundance and success except your very own self. Don't buy the products of companies instead buy their ownership is the soundest advice when it comes to purchasing of stocks. When the par value of companies are low then it is high time to buy and wait for a decade or two to decide finally what to do with the stocks you own. In the end stocks provides an 11.5% increase in profits compared to other forms of investments. Diversification in the procurement of stocks must also be adhered. The more diversified is your investment the lesser will be your risk. Remember buying stocks of companies does not make you a gambler, it makes you part a owner of companies you bought.