You Are Viewing


Five Foundational Investment Principles

Metal Wheel Concept

2018 wasn’t a great year for the broad investment markets. The S&P 500, a basket of large domestic companies, was down 4.38%. International companies, as measured by the MSCI EAFE NR index, were down 13.79%. And bonds, as measured by the Barclays US Aggregate Bond Index, were flat for the year. This was the worst year for large U.S. companies since the 2008 “Great Recession”, an amazing run when viewed in historical context. In fact, going back to 1928, Bespoke Investment Group calculates that, on average, a 10% drop (off of a market high) occurs a little more than once per year.

It’s hard to argue that a decade-plus-long bull market is anything but good. That said, I believe that the relative tranquility of the recent past has caused many investors to forget just how volatile the equity markets can be. To that end, before the next inevitable drop, investors should take a moment to refocus, and reaffirm their core investment beliefs, which should serve as the foundation of any investment strategy. With that in mind, below are my five core investment beliefs. I believe that they have served me well over the years and may be able to do the same for you.

Belief #1: Optimism (Faith in the future)

Investors tend to be an optimistic bunch. They delay the gratification of spending their money today in order to consume tomorrow because they believe that their money will grow. “Do you think stocks and bonds will grow in value over the next 30 years”? If the answer is “yes,” stay invested and add to your portfolio if possible. If, on the other hand, your answer is “no,” then why would you invest your money in stocks and bonds? It really is as simple as that.

In my experience, very few people truly believe that the markets won’t grow over their lifetime. In some cases, pessimistic “investors” will keep their money in cash or CDs at a bank for very long periods of time, because they believe their money is “safe.” But oftentimes, inflation and taxes will eat away at the purchasing power of those funds, which raises the question, “What is ‘safe?’”

Belief #2: Patience

Investing is not a get-rich-quick scheme. The reality is that it often takes a lifetime to build wealth through the stock and bond markets, with the greatest benefits seen only after many years of compound growth. One of my favorite analogies is to think of investing like planting a tree. There will be many winters when you don’t see much growth, but, after many years you will hopefully have a beautiful tree.

Belief #3: Discipline

When the markets drop, it is all too easy to abandon hope and fall into “panic-mode.” That panic is often reinforced by people you love and trust, such as family and friends, who may be selling their investments. But panic and fear are generally not drivers of good investment decisions, which is why discipline is so important.

A disciplined investor doesn’t overreact to the “news of the day” and continues to stick with their plan. We live in a hyper-sensationalized world – led by a media that loves to sell bad news. Sometimes, the best advice is to stop obsessing over monthly statements, turn off the TV, and do what matters most to you… which is probably not worrying about the investment markets you can’t control.

Disciplined investors may even profit – over the long term – from big market downturns, as they often invest when things look like they can’t get any worse… which is, sometimes, the very best time to buy! As Baron Rothschild (an 18th century British nobleman of the Rothschild banking family) said “the time to buy is when there’s blood in the streets.” Following that advice, Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon.

Of course, there’s never any guarantee that the markets will recover from a steep drop, and if they do recover, how long it will take for that recovery to take place. But that said, from the Great Depression to the Great Recession, history has shown us that those who are disciplined enough to stick through the bad times will eventually see brighter days.

Belief #4: Evidence-Based Investing

Since the allure of relying on one’s “gut” is so strong, it is imperative to avoid letting your own biases and/or emotions steer your portfolio’s direction. Instead, investment decisions should be based on facts, statistics, research available, and most importantly, a process for evaluating that information that removes emotion from the process. As evidence changes, it may be time to update a portfolio. Finally, it is important to research different perspectives, so that you are not falling prey to confirmation bias; the tendency to interpret new evidence as confirmation of one’s existing beliefs or theories. Ideally, one should know enough about alternative views to be able to argue against themselves.

Belief #5: Global Diversification

In today’s global economy, it’s potentially easier than ever to avoid putting all of your eggs in one basket. The combination of mutual funds becoming more price competitive and accessible in recent years, along with the rise of exchange-traded funds (ETFs), has made it easier to globally diversify within your investment portfolio.

Diversification is important for many reasons, but one of the most important reasons is that it helps you avoid over-concentrating your portfolio in one or two of the “hot” names of the day. According to JP Morgan Chase (Fieldpoint Private, Spring 2016), since 1980, 320 stocks were replaced within the S&P 500 due to “business distress.” This is just one reason why many people believe that the market is way too dynamic to place large bets on individual companies.


These five principles are foundational in helping you construct a portfolio you can stick with over time. It is worthwhile to point out that consistently following these principles is not easy. Investors can, and often do, get in their own way. Therefore, in areas where you feel you need help, consider working with a professional financial advisor.

The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All commentary issued is without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company’s stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security–including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. Please read all disclosures located by following the Disclosures link on the bottom of this page.