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Revolutionary Common Sense

Common sense is the intelligence that all people possess. It’s the basic, practical wisdom of everyday life. Thomas Paine used common sense to inspire revolution in his pamphlet series “Common Sense.” To be successful at investing, you must apply revolutionary common sense to your investment strategy and performance.

In order to be a successful investor, you must appreciate the long-term. You can invest in stocks or bonds, but those are both risky. Therefore, you need to find a balance between taking risks and making profits. Each person has different tolerance for risk and appetite for profit; therefore each person’s investment strategy is individualistic.

Allocating Your Assets

The most important investment decision you will make is how to allocate your assets. Most of the return from any investment portfolio comes from asset allocation, or the choice of which types of investments to use and how much money to invest in each type. A disciplined approach that considers long-term goals dramatically improves your chances for success.

Mutual funds are a popular investment option. An investor can choose from thousands of mutual funds, and the selection is crucial because they all have different performance records. The Holy Grail for investors is to find a fund that will beat the market consistently over time. However, advertisements and articles may not be entirely accurate in their portrayal of which funds are best; this exaggeration could cause investors to make bad decisions about their investments.

In fact, few investment managers are able to beat the market. The ones who can do it for one period rarely maintain that record. Predicting which investment managers will beat the market in the future is impossible because only a very few of them have been able to achieve this feat.

Past performance doesn’t guarantee future results. This is because, over time, the average return will be achieved again and again. Therefore, if a fund has had exceptional returns in the past, it’s likely that those high returns will only continue for a short period of time before returning to the normal average.

Motivated by Marketing

The mutual fund industry doesn’t explain to its investors why it does what it does. Perhaps, in the past, they did. But now that’s not the case. Marketing has taken over from management as a way of doing business for financial firms in the mutual fund industry. They promote funds based on how well they think those will do with consumers and then try to get them tested on people in labs before releasing them to the public. Even though they know that high-performing funds can’t sustain their performance once more people invest in them, these financial firms don’t close off new investors from investing into those funds even when there’s no longer any hope of getting good returns out of those investments. Spin is replacing good advice and counsel for their clients because that’s what makes them money instead of giving solid advice about which products are best suited for different kinds of investors’ needs and goals. Moreover, governance within this industry is problematic because outside companies manage so many different funds within one company instead of having separate entities handle each individual product line by itself so there isn’t such a conflict between what’s best for shareholders versus what’s best for customers at large (the ones who buy shares). The whole structure should be reworked so that it serves its customers better than it currently does today rather than trying to sell more products through misleading marketing techniques or hiding information from potential buyers about how much risk they’re taking on by buying into certain types or sizes of investment vehicles without first understanding whether or not those might fit their specific needs as an investor going forward over time