Smart players think long term

Don’t treat the stock market like a quick flutter

Investing secrets: Everything starts with the right mindset

I’ve been fortunate to have met some great minds, people far smarter than I am, who showed me how to get ahead financially. I’m very grateful for this and I think that’s why I wrote The Money Plan, to share some of the secrets they taught me in order to help as many people as possible.

This week I read a great blog by one of them. David Booth is the founder of Dimensional Fund Advisers and a genius in the investment world, so I wanted to share his thoughts and mine so you can benefit from his wisdom.

Gambling is not investing

This is such an important message to take on board. Gambling is a shortterm bet, if you treat the stock market and investing like a casino, picking your favourite share and trying to “buy low, sell high” then you may very well end up sorry.

If you bet on the stock market in this way, you need to be right twice: when you buy and when you sell. Investing, on the other hand, is a long-term game; you buy, sit tight, and go off to enjoy your life. The sooner you start, the luckier you could become.

Embrace uncertainty

Stocks do not go up in a straight line, which of course is what worries people. But as investors we are rewarded for the uncertainty we take in the stock market.

Over the last 100 years the world stock market has returned around 10% on average per year, but hardly ever is it close to 10% in any given year. Some years it’s far higher, and others it’s negative. We can’t make this uncertainty disappear so we should embrace it, by buying into the world stock market and holding on for decades.

Tune out the noise

If an investment sounds too good to be true, it probably is. Fads come and go but the stock market is still here. TV experts offering tips, my neighbour’s next sure thing: these are entertainment, not investments, and it’s important to train yourself to think that way.

You can do very well without any insider secrets, being in the know, or first in line. While sometimes the world stock market is unpredictable and may seem chaotic at times, there is a form of order which rewards the long-term buyer.

Buy a world index fund and leave it alone for as many years as you can

What should I do?

I’m often asked: “If what you say is true, why do so many try to beat the market, why not just accept the market return and leave it?”

Because we all want to think we can beat the market, just like we think we’re a better than average driver, lover or employee. You would do very well by buying a world index fund and leaving it alone for as many years as you can. Your future self will thank you.