February 5, 2012

Ignore the news and avoid competing against the best

What's the losers game when investing? The losers game is the game of following global economics and markets and investment advice and trying to make smart decisions along the way.

The first thing you should do to avoid the losers game is to ignore 99.9% of the financial news. What you hear is probably only distracting news. The financial news is not something that is unimportant, but you don't really need it when you are investing.
The second thing you need to understand is that you are competing against the best. Involved in the financial markets are people with PhD-degrees, people with Nobel Prizes who are working for billion-dollar institutes. Here it is also important to remember the Hedge Fund: Long-Term Capital Management, who hired a couple of Nobel Prize winners, but still had to shut down after a couple of years. Intelligence is not everything, but there are a lot of intelligent people who are making money in the financial markets. You need to be financial intelligent.

So what should you do to avoid the losers game? According to Business Insider, you should:
  • Invest in a diversified portfolio of low-cost index funds
  • Rebalance automatically when the allocations get out of whack

Apparently, the reason to why you do not hear more about this strategy is because of the financial media you are supposed to avoid. How would they make money if  you only invest in low-cost index funds and ignore the news? It is also harder to make many mistakes when investing in an index-fund, and you will probably save money from expensive fees.