The Importance of Sticking to Your Investment Strategy

To one degree or another most of us question our decisions. While it can be a healthy practice, it could end up costing you money — at least where your investments are concerned.

Investing is a long-term process that typically pays the greatest rewards to those with patience and consistency.

This is because most investments don’t payoff in a matter of months, but typically over several years.

The only way to fully take advantage of that process is to develop an investment strategy, and to stay with it no matter what else may be happen along the way.

Understand there will always be diversions.

When it comes to investing, this is a very important concept to grasp.

There will always be a stock, a sector, or an asset class that will look like a better place to invest. Once you understand this, it makes it easier to notice. But it’s still difficult to ignore because the financial media is awash in gurus doing heavy sales pitches on the latest up-and-coming trend.

If you follow this path, you’ll be in danger of chasing the investment du jour — a cycle that never ends.

Without a doubt, there’s always a hot new stock or newfangled investment that will draw your attention. If the investment interests you, and you have the capital to take a small position in it, then by all means go for it.

But if your portfolio is fully stocked with choices that came from your own investment strategy, you’ll need to stay the course in order for your picks to payoff.

This puts a very great emphasis on the need to be sure of your investment strategy in the first place. Your strategy should be based on careful research, the opinions of people you respect and your own personal financial circumstances. Once your strategy is in place, it’s time to ignore the clutter that’s inevitable in the financial media. 

What works for someone else, may not work for you.

If you have carefully developed your own investment strategy, you’ll have confidence it’s the right one for you. This is incredibly important because a strategy that may work for someone else may be completely wrong for you.

As an example, you may see a lot of experts recommending energy stocks. You yourself on the other hand, tend to be an index fund aficionado. Energy stocks may work very well for people who have some knowledge of that sector, as well as a risk tolerance for higher volatility investments.

But if you have neither the knowledge nor the risk tolerance, energy stocks may be all wrong for you — no matter how right they may be for other people.

There is a close correlation between investing in assets you know little about, and losing money. And since one of the best strategies to make money is to avoid losing it, you may be ahead of the game simply by avoiding investments that you don’t understand.

Your investment strategy needs time in order to succeed.

Patience really is a virtue when it comes to investing. But sometimes we get a little bored when our investments are just running in place. We may even find ourselves craving action — the kind of fast investment growth that makes investing exciting.

But when investing gets exciting, it also becomes a lot more risky. That’s when you’re in danger of losing money, and that defeats the whole purpose.

Success in investing comes about largely by adopting an attitude of patient capital. You want to choose the best investments, and then be prepared to wait until they payoff.

Over the long run, slow and steady usually beats a series of unpredictable big wins.

Changing strategies may mean that you don’t have a strategy.

If you are prepared to change investment strategies midstream, you may need to ask yourself if you even have a strategy at all!

After all, if you’re willing to abandon your original strategy in favor of something new and different, how solid was your original strategy to begin with?

If you have done your research and considered the available options, you need to stay with your strategy. Never abandon your core investment strategy simply because another one seems to be working better at the time.

Investment gains have a way of balancing out over time, and the hot trends of today tend to cool off as time goes by. Have confidence in your investment decisions, and understand that patience is an integral part of that success.

Glen Craig publishes Free From Broke, a personal finance site dedicated to teaching people about their finances.

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Reader Comments

    • says

      They have a game plan. We might not agree with it and many question what effect it’s had on the economy, but they have a game plan.

      And truth is many of us could learn a bit from them. They have meetings and set expectations for what they plan to do in the near future. I bet many families could benefit from doing that themselves.

  1. says

    Sticking to an investment strategy is something am yet to master. Its so tempting to change strategy especially when you see others succeeding with some other strategy or stocks or due to sheer peer or media influence! You raise pretty solid points that have given me the much needed kick and motivation to sail it through with my particular portfolio and stategy. Great post Glen

    • says

      Here’s the thing though, you hear about someone’s success but you rarely get the details on their success and you probably aren’t hearing about their failures either. I could tell you about stocks I’ve done well with but that doesn’t mean my portfolio is doing well overall.

      The media has gotten to where it’s goals are advertising and growing an audience (really that hasn’t changed). They aren’t there to educate you for the most part. You have to remember that and take anything you hear on the “news” with a grain of salt.

  2. says

    Too many people get easily spooked. It comes from a lack of confidence in the markets and their ability to navigate the ups and downs.

  3. says

    It can be very tempting to change financial strategy but one must understand that these things take time in order to see the results. Patience are perseverance are what you need to see it through.