Make smart financial choices to grow your wealth

I am here to help you make smart financial choices and help you grow your wealth. One way to do that is to avoid making mistakes.

That’s why I thought now would be a good time to talk about some general investment advice I hear a lot. Sometimes those tips are great, but not always. You should handle them with care, because blindly following those tips might be a mistake.

These mistakes don’t always lead to immediate money problems, but they’re mistakes in mindset. With the possibility of a negative long-term impact on your portfolio and prosperity.

Keep in mind that my assumption here is that you have been investing for some time now, you have a plan, you can handle your emotions and have the right mindset.

If so, you have probably heard investment advice before. You probably followed it. Some of it may not be the best. Let’s dive into some investment advice you should handle with care.

Diversify your portfolio to reduce risk

A very common piece of investment advice is that diversification reduces risk by investing in vehicles that span different financial instruments, industries, and other categories. A diversified portfolio can lead to better opportunities and higher risk-adjusted returns.

While this is true, it is not complete.

Diversification alone is not the best way to reduce risk. It is not enough to simply choose different industries, instruments or categories. There’s more to it than that.

You have to look for correlations between assets. Looking for correlation means: are the assets moving in the same direction or in opposite directions? That’s what diversification should be about: picking assets that move in opposite directions! That way you really reduce risk and get higher risk-adjusted returns.

Besides the lack of correlation, there are two other important reasons why diversification may not be a good fit for your portfolio:

• Buying too many assets, just because you want to diversify. This will cost you a lot in transaction fees. You would be better off buying a simple index ETF instead.
• It prevents you from doing your research. The chances of finding your tenbagger are slim. A tenbagger is a term for an investment that returns 10 times its initial purchase price.

Wise advice on diversification from one of the best, Ray Dalio: find 15-20 assets that are uncorrelated. Invest 5-7% of your portfolio in each of these assets.

DCA will get you the best value for your money.

DCA, short for dollar cost averaging, is often presented as an easy investment approach. An approach that can help you deal with uncertain markets by making purchases automatic.

The main problem with DCA is that investors may fail to consider the timing of their purchases. They buy automatically, convinced that buying more at lower prices is the right move. They believe the stock market always goes up. Any decline is a buying opportunity. That is not true. Just look at the turbulent journey of Nikola Corp.

DCA can be a bit shortsighted. A decline is usually for a good reason. In the stock market, there are thousands of investors, hedge funds, and analysts who deal with stocks every day. They have access to information that you and I don’t have. It’s not a great idea to buy when insiders and other smart people sell.

So, in that case, don’t buy. Maybe even sell. Which brings us to the next advice to think about.

Go long

There’s more to investing than just going long. While buying assets and hoping their value goes up is a pretty common approach, it’s not the only way to achieve financial success. Smart investors know how to play both long and short.

Going long means investing with the expectation that a financial asset will increase in value. Most investors follow this approach: they buy assets and expect the price to go up in the future.

However, this optimistic view comes with some important considerations. The stock market isn’t a one-way street. It has seen some pretty big crashes and declines over the years.

Exclusively focusing on long positions can be a limiting strategy. By refusing to consider short selling, you might restrict your potential profit and remain vulnerable during market downturns.

By combining long and short positions, you can create a more robust, resilient investment portfolio.

Buy and hold

Buy and hold isn’t always the best advice for investors. It’s simple advice that only works for very strong stocks. Unfortunately, investing is not as simple as setting it and forgetting it.

Here’s something you might forget: selling isn’t a sign of weakness. It can be a superpower. The most successful investors know when to buy. They also know how to let go when it’s time. An overvalued stock is like a party that’s about to end. The smart money people leave before the music stops.

Investing isn’t about following rules. It’s much more about understanding companies, sensing shifts, and having the courage to act. Sell when needed.

Follow the news to stay up-to-date

Financial markets are pretty complex. Some people even think the markets know it all. At least, that’s what economic theory would have us believe.

Even so, lots of investors think that following the news is a good way to make money. This approach doesn’t take into account the nature of market information or how investment decisions are made. The thing about breaking news is that it’s often already reflected in the stock market.

The most successful investors understand that financial markets are ecosystems of information, where value is derived from deep research, strategic thinking, and a comprehensive understanding of broader economic trends.

So, don’t worry too much about the news. Trust your investment plan and invest in companies with great earning capacity. That’s the only real factor that drives the stock price.

If you know a company is solid with great products and a good earnings track record, it’s likely that it will continue to be great. So, the earnings will keep on coming. You know what that does to the stock price.

To wrap things up

I hope this was helpful. Hope you can make some more smart financial choices. I’ve written this with some more seasoned investors in mind, but if you’re just starting, this might help you think critically about the advice you certainly will be given.

Hope it was not too dorky and you enjoyed it. Good luck with your investments!