If you want returns on your investments, Booth says the best strategy is to stick around for long-term, lucrative growth.
That's because I don't obsess over the short-term ups and downs of the market. I want to make sure I stick around to capture the long-term ups.But with so many distractions and apparent shortcuts, I know it can be hard to stick to your plan. TheOne crucial piece to staying a long-term investor is to understand the difference between expected and unexpected returns.
Those are what I call unexpected returns — the result of what people didn't see coming. From day to day and week to week, the market may go up a lot or down a lot because of pandemics, trade wars, interest rates, and everything else no one saw coming.When folks on TV talk about what the markets did today, they are trying to explain unexpected returns.
So that's the struggle for both the new investor who just signed up for an online account and the experienced investor with lots of computers and data and degrees.My colleagues Gene Fama and Ken French have spent their whole careers combing through the data to explain those expected returns. Thanks to them, you don't have to. I believe their research suggests timeless strategies that give you the greatest chance of capturing the long-term expected returns relative to your risk tolerance.
So, instead of getting distracted by them, pay attention to the small things that can make a big difference over the long haul.One of the simplest ways to increase your exposure to expected returns is to invest in a broadly diversified portfolio. Keep your eyes on the total costs of investing. There's no quicker way to erode future expected returns than by paying excessive fees.
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