Long game investing D.O.G.M.A.
Written: 07 October 2022
Author: Kirsty O’Hara
8 min read
Recent statistics from the Financial Markets Authority (FMA) made our jaw drop:
31% of online DIY investors jumped into an investment because they didn’t want to miss out. And, 27% said they invested based on a recommendation from someone they know, without doing their own research.
As lovers of insights and information, these stats made us want to sit in a corner and rock. These numbers most concerned us because we are not fans of coin tosses. At Flint we believe that making a plan, sticking to it, and investing for the long term is most likely to have good investing outcomes.
With World Investor Week in full force, we couldn’t help but binge the generous sharing of resources on your behalf. The theme this year is: ‘Good investing is long term investing’.
If you’re new to investing, or feel like a refresher, we’ve weaved the best of the FMA’s Investor Week content into a handy D.O.G.M.A:
D – DIY investing? Follow the 5 D’s.
O – Optimism. See how it can help.
G – Goal setting. Get it on paper.
M – Map Plans. Goals without actionable plans are just dreams.
A – Attitude. It’s half the game.
D is for: the 5 D’s of DIY investing
When playing a long-game, the FMA suggest first considering the 5 D’s of DIY investing:
Do your due diligence:
If your friends are already investing, it’s tempting to want to jump in and follow their lead. That said, it’s important you understand how investments work and whether any investments you’re considering are a good fit for you. Ages, stages, goals, incomes, family background and many other factors can dictate different investing strategies for different people. It might feel like due diligence, or research, is slowing you down – but it may actually be helping you to get you where you want to go over time.
For extra FMA due diligence tips click here.
Drip feed your investments:
We’ve talked about drip feeding before. It’s when you invest a certain amount at regular intervals (for example automatically every pay day). This approach saves you from having to try to pick when it’s a good time to buy, and is referred to as dollar cost averaging.
Dollar cost averaging is when you invest the same amount on a regular basis, regardless of what the market is doing. The FMA support this approach to investing, stating “By maintaining your regular contributions (also known as drip-feeding or dollar-cost averaging), you are buying cheaper when the market has dipped and will have more units to benefit from when the market recovers. Many financial experts see market dips as an opportunity to “buy shares on sale”.”
Diversify your portfolio
This is just a fancy way of suggesting you have a mix of different types of investments. Having a mix of companies in your investment portfolio protects you from a single investment going wrong. A portfolio with a really great mix of investments may be structured strategically so that when one investments drops, another ‘uncorrelated’ investment might in fact do ok. The FMA highlight that there are right ways and wrong ways to diversify. See the FMA’s diversification tips here.
The general thinking from the FMA is ‘If you are well diversified, take a long-term approach to share investing and understand your own risk appetite, you’ll likely come out on top’.
Another person who would agree with taking a streamlined approach to selecting a few really good investments, is Samantha Barrass (CEO of the FMA). Samantha openly talks about the fact that she doesn’t have time to actively trade and track markets daily. She instead prefers to invest in well researched managed funds, because that way she knows that the fund manager is strategic in the composition of those funds to create diversification - which Barrass and her family then benefit from.
The benefit of a managed fund, is that most fund managers work hard to ensure a good mix of assets within a particular funds holding list. The one thing to keep in mind - if you are buying multiple managed funds and have KiwiSaver – is to be sure that you haven’t invested in funds with nearly identical holdings lists. To check what holdings a fund manager or KiwiSaver holds you can consult either the Disclose register here, or Sorted here.
Don’t freak out if the markets go down.
The FMA share the reassuring message that: “If you’ve ever opened your investing app to a sea of red down arrows and felt a surge of panic, you’re not alone. Having an emotional reaction and a desire to do something - anything - to stop the fall is actually hard-wired into our brains as humans. It’s called loss aversion, and behavioural scientists have run experiments showing we’re almost twice as likely to fear losses as we are to enjoy gains.”
We wrote about this last week, and explored science backed theories around grit as a buffering agent against loss aversion. If you’re curious to learn more what loss aversion is, and about how gritty-ness can help when investing, then click here.
The FMA comment that “It’s easy to get discouraged during periods of market volatility but there are advantages to keep going. Share markets go up and down (which is a normal part of investing) but history shows that they [generally] trend upwards over the long term.”
Doubtful? Talk to an adviser.
We always love to support customers to do their own research, but sometimes you just need to call in an expert. If you’re feeling really doubtful about your investing goals or strategy, an adviser might help you to gain clarity and refresh your goals.
The FMA offer some handy tips here, when selecting an adviser.
We hope you find these 5 D’s steer in you in the right direction when investing for the long term. Next up – let’s look at O.
O is for Optimism.
To be a successful investor you may find the emotional rollercoaster smoother, if you have an optimistic mindset that: economies generally recover, and companies strive to figure out a way to return to profitability after any downturns. While a little scepticism can be useful, an overly pessimistic outlook may make it harder to stick to your long term strategy, during frequent market ups and downs.
To back us up, we turn to Tom Corley - who devoted more than five years to studying the habits of the rich versus the poor. He learned that optimism is a trait that may help build wealth. Corley discovered that 67% of the self-made millionaires studied shared a habit of being positive and upbeat.
While investors may benefit from optimism, this is not to say investors should not proceed without some caution. Investing in shares incurs risk. There have been great companies that have gone under, which is why a diversified portfolio should be a goal for every investor.
G is for Goals
Dr. Gail Matthews, a researcher at Dominican University, concluded that participants aged 23 to 72 who put their goals in writing - and sent regular progress reports to friends - had a “much higher success rate than those who kept their goals to themselves." She uncovered that more than 70% of participants who wrote down and shared their goals reported success, compared to 35% of those who kept their goals to themselves, never writing them down.
In a digital world, we appreciate this could be a big ask. That said, even if you’ve thought about financial goals before, it can be worthwhile reconnecting with them by writing them down - and in the process establishing if they need any refinement based on your age, stage or priorities.
How to set smart goals.
If you’re yet to make an investment plan the Australian Investors Association recommends using the SMART format when setting financial goals:
- Specific – make each goal clear and specific.
- Measurable – frame each goal so that you know when you have achieved it.
- Achievable – you need to take practical action to achieve a goal.
- Relevant – determine whether your goals relate to your life and are realistic.
- Time-based – assign a timeframe to each goal so you can track progress.
Once you’ve got those long-term goals on paper, it’s time to make a plan to achieve them.
M is for Mapping Plans
Investment studies have shown that investors fail to hit their long-term goals not because they had a bad strategy, or even necessarily picked bad stocks or funds. Most commonly they didn’t achieve their investing goals because they didn't stick to a plan.
If sticking to a plan is half the game won, then we heavily recommend taking a moment to establish your own investing goals and plan accordingly for the long-term.
If you’ve completed the SMART goals above, then this step should naturally follow.
The key here is to look for micro-habits you could put in place, because as Einstein says “We are what we repeatedly do. Excellence then, is not an act, but a habit”.
You may map out simple actions, such as:
- Making an automatic payment every payday to your investment provider, or Flint wallet.
- Review your budget, and look for say five things you could trim or do without – then repurpose that money into savings or investments. If you want to deep dive into budget trimming the Sorted calculators may be useful.
- Buy a notebook or investment journal to track things. The Curve have a super classy investment journal in their online store.
- And if you’re the kind of person who loves a good checklist – the FMA have put this awesome planning resource together for investors. Click here to download.
As Matthews suggested, you also may want to find an accountability partner. This is someone who simply asks you how it’s going. It could be a partner, family member, or friend who you share your goals with, and keep each other accountable to plans you’ve made. Choose this person wisely, to ensure they are someone who wants to see you enabled by these investment goals. By diarising a regular catch-up to tell them how you are tracking, you have a higher chance of sticking with the plan you have mapped out.
There are also lots of masterclasses and social investment clubs popping up, where you may find accountability buddies – however, if you do choose to participate in any of these, we do encourage you to ensure you always refer to more than one source of information when considering investment decisions that may come to your attention.
A is for Attitude
This one might seem simple, yet it is one of the most important on the list. For many people they either start investing before they feel ready, or they fall into the trap of thinking that investing is only for people who are already rich. In a social media driven world, it’s often too easy to compare ourselves to others – especially those who have had more time in the market and benefited from the wonder of compounding returns. Finding a way to be ok with where you are at, is really important when investing.
One aspect of attitude can be to ‘get real’ about your personal risk tolerance and current investor profile. We’ve done a full deep dive on the topic before (here) – where we shared the Sorted tools and calculators, and outlined how they can help you identify your risk profile.
If you’re exploring higher growth or more risky investments, you need the right attitude to stay the course when the market bounces around. If you’re looking for more certainty in your investing strategy, we get that, but please do acknowledge that you will generally see lower returns if you choose a more conservative range of investment products.
It’s also worth keeping in mind, that even if you are only investing a small amount, you are hopefully going to continue to add to that investment strategy over time. We realise that doing due diligence to invest $50 can feel like a heavy time burden; however, if you imagine that soon that investment might grow to have $10,000 or more in it – due to regular contributions – then you may have a different attitude to your research process.
Extra Tips
Aside from the above D.O.G.M.A, the FMA also remind people that before investing please make sure that you have all your other financial basics covered:
- Review your budget. Is there extra money you can set aside each pay period for investing?
- Emergency proof your savings. Do you have emergency cash available in the event of any unexpected expenses?
- Check you have insurance sorted. While none of us ever want to claim, insurance can be a life saver if an unexpected circumstance derails your income or assets.
- Nail the basic investing knowledge. Have you learned about the power of compound interest, the importance of staying in the game, your investing time horizon, and why regular contributions are so important?
- Check your KiwiSaver is sorted. Remember, KiwiSaver is a form of investing. Even if you are self-employed, or a homemaker, it’s worthwhile getting KiwiSaver working for you.
In Conclusion
While the above tips are comprehensive, and many of them help regulators tick boxes, our most important parting words are around the value of humility. Even after 7 years of investing, we loved Money King NZ founders parting words when recently summing up their investing learnings, by stating:
“I’ll probably continue to make mistakes in the future, as no one can be 100% perfect when it comes to investing!”
While we realise that may not be what you want to hear, we appreciated such a humble conclusion (from someone who has skin and experience in the game), could be just what you need to kick any perfection paralysis to the kerb. If we are all realistic that some investment decisions might outperform others, then we are psychologically likely to enjoy the experience far more.
If you can remember to stay humble, and be open to learning, we hope you will enjoy your investing journey - regardless of what the years ahead deliver.
Happy long-game investing!
Flint
IMPORTANT NOTICE AND DISCLAIMER:
All content shared is of a general nature, current to the time it was penned, and is not financial advice. Before making any investment decisions, please be sure you have completed full due diligence. This should include reading the product disclosure statement (PDS), considering fees and taxation, identifying your time horizons, and understanding the performance history and reputation of the investments you are considering.
Please note: When investing you are not guaranteed to make money (and on occasion you may lose some or all of the money you began with). Seek independent advice to establish if an investment is suitable for your financial situation and long-term wealth generation goals.
For more information, visit:
https://www.worldinvestorweek.org/?p=home
https://www.fma.govt.nz/consumer/investing/world-investor-week/
https://www.morningstar.com/articles/1103776/why-optimism-is-a-secret-weapon-in-investing
https://www.frontiersin.org/articles/10.3389/fpsyg.2022.914649/full
https://www.ted.com/talks/barry_schwartz_the_paradox_of_choice?language=en
https://moneykingnz.com/7-years-of-being-an-investor-money-king-nzs-investing-journey/