Five Insider Investing Tips Explained by the Money Expert – Stock Market Mistakes to Avoid

Warren Shute, financial expert and author of The Money Plan, explains everything you need to know about the stock market – including how you should treat long-term investments

I’ve been fortunate to have met some great minds in my life, people far smarter than me, who showed me how to get ahead financially.

I’m very grateful for that and I think that’s why I wrote The Money Plan to share some of the secrets they taught me to help as many people as possible.

This week I read a great blog from one of the people who helped me as he celebrated 40 years in the business.

David Booth is the founder of Dimensional Fund Advisers and a genius in the investment world so I wanted to share his thoughts and mine so you can benefit from his wisdom too.

Gambling is not an investment

This is such an important message to consider.

Gambling is a short term bet, if you treat the stock market and invest like a casino, pick your favorite stock and try to “buy low, sell high” then you may end up very sorry.

If you bet on the stock market in this way, you must be doubly right: in buying and in selling.

Investing, on the other hand, is a long-term game; You buy, you are stuck and you go to enjoy your life. The earlier you start, the happier you could be.

Accept the uncertainty

The stock market does not rise in a straight line, which of course worries people when it comes to investing.

But as investors, we are rewarded for the risk we take in the stock market.

Over the past 100 years, the world stock market has returned an average of around 10% per year, but has seldom come close to 10% in any given year. In some years it is much higher, in others it is negative.

We can’t make this uncertainty go away, so let’s embrace it by buying into the world stock market and holding onto it for decades.

Turn off the noise

If an investment sounds too good to be true, it probably is. Fads come and go, but the world stock market is still here.

TV pundits offer tips, my neighbor’s next certainty: This is entertainment, not an investment, and it’s important to train yourself to think that way.

The truth is, you can do very well without having insider secrets, knowing the ropes, or being first.

While the world stock market is sometimes unpredictable and sometimes seems chaotic, there is a form of order that rewards the long-term buyer.

What should I do?

I’m often asked, “If what you’re saying is true, then why are so many people trying to beat the market, why not just accept the market’s return and leave it?”

Because we all want to believe that we are better, that we can beat the market, just as we think we are an above average driver, lover or employee.

You would do very well to buy a world index fund and leave it alone for as many years (not months) as possible. Your future self will thank you.

Five things you need to know about long-term investing

• If you invest £100 each month at a return of 10% pa, after 30 years your fund will be £207,929.
• Saving £100 a month into a bank account with 1% interest would leave a fund of just £41,968 after 30 years.
• Increasing your monthly savings by just 3% can make a big difference in your bottom line. Time is your best friend in investing as returns grow exponentially.
• Most people don’t see themselves as investors, although most of us have investments in annuities.
• A significant risk to your money is inflation: Since 2000, inflation has nearly halved the value of cash and currently stands at 7%.