Are you one of those traders who thinks he can outperform the market? Think twice! The fact that it is hard to outperform the market has become evident since the time of the “Winning the Loser’s Game” book by Charles Ellis in 1985.
The book looks at the returns provided through passive investing (indexes) over those by individual holdings and trades. In the latest edition, released in 2016, it became even more evident that this is the case. What can you do to use this information to your advantage?
Table of Contents
It can be satisfactory to make a good trade and take home a nice return. However, what would have happened when the market continued to rise? This is simply human behaviour at work and can result in bad trades. Not only that; the sentiment of the markets can be even more important.
Trade war with China? Better sell your assets! Rise of a new coronavirus variant? Better sell your assets! Time will tell, but when looking at the returns for over a century, holding onto your assets has been the wisest thing to do.
Naturally, you should not hold onto a single stock and become a passive investor. Passive investing works best when you diversify, preferably in indexes. Good examples of steady index funds that have dominated the market are the S&P 500 and the MSCI World Index.
By purchasing these indexes at a regular interval, you can spread the cost price over a longer period. This is an approach known as Dollar-Cost Averaging and is a solid way of growing your wealth.
Compounding is a key aspect of finance and is important to understand. Your assets do not only increase in value, but they also provide you with dividends. These are payments of companies to shareholders based on the revenue they make.
Many indexes automatically reinvest your dividend, growing your portfolio. These are known as total return index funds and are a good way to start investing for the long term.
Want to track all your holdings? There are many types of stock tracker apps you can use. These trackers integrate with brokers through APIs and provide you with a real-time overview of your holdings. This is not the reason why we recommend using a tracker: real-time insights tend to go hand-in-hand with day trading.
A stock tracker can allow you to set certain thresholds. For example, you can get a push notification when there is a large gain or drop, or when specific news has been released. This allows you to participate in the market without too much attention, becoming a strong long-term passive investor.
Want to learn more about what a tracker can do for you? Visit the website of Delta, a leading provider of stock tracker technology. Their functionalities include real-time integration with brokers across the globe as well as news and the possibility to integrate crypto assets.
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