5 Smart Investing Principles

There’s no shortage of DIY investing advice online, especially with what’s going on in the market. Unfortunately, a lot of this advice can be confusing because they express opposing viewpoints or introduce complex ideas without expressing the foundations they’re built on.

For example, you aren’t proficient in driving without first learning some key principles like staying aware of your surroundings and being a defensive driver.

The same is true of investing.

Before you try to tackle complex ideas or decipher opposing viewpoints about the market, you should build a strong foundation based on smart principles.

This blog features five such principles that can help you understand what it takes to create an investment portfolio that’s designed to pursue your investment goals.

There are others beyond these five, but these are a great starting point to get the basics in mind and break the cycle of buying high and selling low that so many investors get trapped in.

Now, let’s get into five smart investing principles you can learn to thrive in the market.

1. Estimate Your Time Horizon

Buying into the market without knowing how long you’re planning to stay is like getting onto a freeway without having a map.

You’ll probably end up somewhere new, but you’re unlikely to enjoy where you end up.

So you need to come up with a time horizon or a plan for how long you want to stay in the market. How should you decide that?

In general, a short time horizon is anything less than four years, a mid-term time horizon is around five years, and a long time horizon is ten or more years.

The shorter your time horizon, the more susceptible you are to volatility. Which is just a fancy way of saying that the less time you’re in, the more exposed you are to prices going up and down.

This means that if you want to protect your money, it’s generally a good idea to be more conservative and plan for a shorter time horizon. Since longer-term investments have more time to recover from downswings, it can pay to be more aggressive.

Deciding how conservative or aggressive you want to be leads us to our next principle.

2. Know Your Risk Profile

It’s easy to say, “I can handle a high level of risk” when the market is going up, but before you take aggressive positions, it’s a good idea to ask yourself some pointed questions and be honest with yourself about the answers.

  • What happens to your outlook if the market drops?
  • How much are you prepared to lose and still stay invested?
  • How would I describe my investment knowledge?
    • Keep in mind, there are a lot of outlets for financial information, they are not all created equal.

Investment risk can be managed, but it can’t be eliminated. Every investment carries some risk, and it’s usually tied to the potential reward.

Different investments inevitably have different risk profiles. Here are some examples of different investment options:

  • Cash alternatives such as certificates of deposit (CDs) are the lowest-risk investments.
    • Traditional CDs offer a fixed rate of return, whereas both the principal and yield of investment securities will fluctuate with changes in market conditions.
    • If you sell before a CD reaches maturity, you may be subject to penalties.
  • Debt instruments, such as government bonds, are further up on the risk curve.
    • Offer a slightly higher return, but at a slightly higher risk.
    • Bond prices, including government bonds, rise and fall daily.
  • Stock investments offer the potential for higher returns, but they also have a higher risk.
    • The return and principal value of stock prices will fluctuate as market conditions, so shares, when sold, may be worth more or less than their original cost.
  • Speculative tools like options contracts and other derivatives are not appropriate for every investor since they carry a high level of risk and, when sold, may have little or no value.

Each of these investments carries more or less risk based on their inherent time horizon and level of trust in the possible payout. But this is not the only form of risk.

There are external risks that may influence the price of a stock or the likelihood of being paid back on a bond. These external risks include economic risk, market risk, interest-rate risk, political risk, and tax risk.

This is a lot to keep in mind, which is why it’s so important to do due diligence on any investment and to know your risk tolerance going in so that you know what you’re prepared to handle.

3. Diversify

Whatever your risk tolerance and time horizon, you want to invest in such a way that you make money while protecting yourself from ruin.

That’s where diversification comes in.

This is the practice of investing across a wide range of categories and companies to spread risk and profit from runs in different areas.

It comes from the idea that a portfolio of different kinds of investments, on average, may potentially yield a higher return and pose less risk than any individual investment.

In principle, when you diversify you want to select investments that have a low correlation with each other. That is investments that don’t tend to behave the same in similar market conditions.

4. Consider Taxes and Inflation

When you look at your possible return on investment, try to calculate what your possible return would be after taxes.

Everything is taxed in America, including your investments, so be sure to factor that in when you consider your time horizon.

Taxes and inflation, or rising prices, are silent thieves if you don’t factor them into your investment plans. Inflation is especially insidious because it can happen slowly, but add up over time.

Things can often change when we’re not looking, but future you will be grateful for keeping taxes and inflation in mind.

5. Don’t Procrastinate. Start Now.

Procrastination can be costly.

If you were to deposit $250,000 in an account earning 6%, at the end of 20 years your account would be worth $801,784.

Wait only five years and the $250,000 would have 15 years to work and would grow to $599,140. Wait ten years and you’ll only end up with $447,712.

Waiting ten years in this example is a $350,000 decision.

If you learn nothing else in this report, please understand the importance of getting started now. When it comes to pursuing investment goals, the more time you have the better.


With these principles in mind, here are some suggestions for how you can go forward:

  1. Put together a personal income statement. Identify all your sources of income and where your money is going.
  2. Put together a balance sheet. This should give you a good sense of your assets and liabilities.
  3. Identify your time horizon.
  4. Be honest with yourself about your risk tolerance. Don’t bite off more than you can chew.
  5. Consider talking to a financial advisor. It can be a huge help having someone well-versed in the markets advise you in your decisions moving forward.

As experienced financial professionals, we help clients like you figure out the best retirement plan for their situation, so that when they’re ready they can retire gracefully with peace of mind.

Please connect with us and let us help you plan for your dream retirement. We would be delighted to go on the journey with you.

Confidence Wealth Managementis a sophisticated Private Wealth Management firm that specializes in what we consider to be next-level, advanced strategies and solutions to protect and prudently grow your wealth.



Interesting Articles to Read

© 2023 Confidence Wealth Management LLC. All rights reserved.

Investment Advisory Services offered through Confidence Wealth Management LLC, an SEC registered investment adviser. Confidence Wealth Management LLC (CWM) and Confidence Wealth & Insurance Solutions LLC (CWIS) are two separate affiliated companies. All investment advisory services are provided by CWM. All insurance products and services are provided by CWIS. CWIS does not provide any investment advisory services. CWM does not sell any insurance products. For complete information regarding Confidence Wealth Management’s services and fees, please review our Form ADV Part 2A Disclosure Brochure, which can be found at adviserinfo.sec.gov or requested by calling us at (310) 824-1000. Information provided herein reflect Confidence Wealth Management’s views as of the creation date. Such views are subject to change without notice. Information provided herein is for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any securities. No investment decision should be made based solely on any information provided herein. Confidence Wealth Management has not taken into account the investment objectives, financial situation or particular needs of any individual investor. There is a risk of loss from an investment in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. This is designed to provide general information on the subjects covered. Pursuant to its circular 230, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that the information given does not give legal or tax advice. Should you have any tax or legal questions, you are encouraged to consult your tax advisor or attorney for any tax or legal matters. Not affiliated with the U.S. Government or any governmental agency.
1,2 Insider Intelligence  3 PWC 2021 Family Business Survey: US Findings

Terms of Use  |  Privacy Policy

Confidence Wealth Management LLC (CWM) is an SEC registered investment adviser. Confidence Wealth & Insurance Solutions LLC (CWIS) is licensed under the NV Department of Insurance, license no. 3647322. CWM and CWIS are two separate affiliated companies. All investment advisory services are provided by CWM and all insurance products and services are provided by CWIS. CWIS does not provide any investment advisory services and CWM does not provide insurance services. CWM and CWIS have no affiliation with government, state, or local agencies. Consult with an attorney or CPA for usage of tax or legal concepts. This material may contain information that are close approximation to the totality of information available to us and not necessarily specific within regards to one situation or another. Some opinions and statements are informational. They are not investment advice as they may not be complete in terms of all details needed to affect an action you wish to undertake, investment strategy or plan. Pursuant to IRS Circular 230, the material is not intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. No estimates used are a promise of return. Also, many opinions are summaries and may not reflect all pertinent facts relevant to you. Any information given is to be considered general, and nothing said herein should be used as a basis for investment decision unless you consult with your Confidence Wealth advisor that can understand your unique situation and give you a customized solution with a complete disclosure. Past performance does not indicate future results. As you know, no one can predict the future. Thus, any forecast in this material is intended strictly as a possible future outlook and not a statement of fact as there could be any scenarios that are not in your favor when making a decision. You must examine all adverse and negative implications on any forecast when made. All information is based on the date of the material and may not be valid, may change, and/or may not be true any longer as time passes. Also, the Form ADV Part 2A for CWM contains detailed disclosures regarding our services and fees, along with applicable conflicts and how we address such conflicts. A copy of our Form ADV can be obtained by calling (310) 824-1000.