Day trading has seen a surge in popularity amid the pandemic, and while this type of investing may be fun and exciting, it doesn’t always pay off.
“The reality is that what makes investing so hard — even so unnatural — for many investors is that its success requires behavior that frankly flies in the face of how most of us are wired,” said Burt White, managing director, chief investment officer, investor and investment solutions at LPL Financial. “Humans are drawn to the exciting: fireworks, summer blockbusters, home runs, and yes, cryptocurrency and day trading. But the key to successful investing is often surprisingly boring. It’s about discipline, consistency and understanding the one truth that no one likes to remember — investment mistakes mathematically hurt more than investment successes.”
“Many investors look for the thrill in the investment process,” added Marc Scudillo, managing officer of EisnerAmper Wealth Management and Corporate Benefits LLC. “However, the gambler mindset is not an appropriate mindset for accumulating wealth in the long term.”
White, Scudillo and other financial pros agree that when it comes to investing, “boring” may be better — here’s why.
A Consistent Strategy Is Proven To Build More Long-Term Wealth
“Sticking with a consistent investment game plan will yield the best results, even though it may not appear a flashy strategy,” Scudillo said. “This is proven best in many retirement plans. Retirement plans have long track records and studies have shown that those participants that have utilized the asset allocation programs have fared much better than those ‘do-it-yourself’ retirement plan participants. Why? Because most of those who do it themselves follow the trends or the investment choice that had the best performing statistics. A pattern of continually chasing past performance trends will lead to lower performance and higher risk.”
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In general, taking the long-term view will pay off more than investing for short-term gains.
“Research shows holding investments over longer periods of time tends to result in a greater success rate of returns versus day trading,” said Margaret Reid, senior portfolio manager at The Private Bank at Union Bank.
It’s Better To Have a Diverse Portfolio Than To Invest Based on Trends
“Following the latest fad or trend is enticing, but in the end will likely not allow you to reach your personal goals for investing or life,” said Heather Winston, assistant director of advice and financial planning at Principal Financial Group. “Holding a diversified portfolio of assets may be ‘boring,’ but it can set you up for a more exciting life in the long run by having the means to pay for it.”
Rather than going all-in buying up GameStop stocks or investing in the latest trending cryptocurrency, it’s better to focus on diversifying your assets.
“Following trends simply because they are highly publicized or ‘everyone is doing it’ is actually counterproductive to your own success,” Winston said. “Rather than chasing a fad, using a balanced approach as the core of your investment strategy will lead to more consistent success over long periods of time.”
Boring Investments Can Help Shield You From Losses
“Build your investment foundation with safe, secure and ‘boring’ assets so that when things go wrong, you are potentially more insulated from the volatility,” said John L. Smallwood, senior wealth advisor and president at Smallwood Wealth Management.
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Alan Becker, president and CEO of Retirement Solutions Group, recommends stocks with dividends, bonds and fixed index annuities as “boring” investments to include in your portfolio.
“Some [fixed income annuity] contracts will even offer increasing income,” he said. “Take a look at several options, find someone licensed correctly and review your options.”
‘Boring’ Investments Can Be Better in the Short Term, Too
Even if you’re looking for immediate returns, that doesn’t mean you should take on risky investments. In fact, you should probably be less risky in this scenario.
“More conservative (some may say boring) investments can get a bad rap because their returns are often compared to those of more aggressive investments,” said Michaela McDonald CFP, financial advice expert at Albert. “When it comes to short-term investing, conservative investment products can make sense. Why? Markets are unpredictable! When markets correct, it can often take years to recover. Your short-term goals are more sensitive to these corrections as you’ll need your hard-earned money to still be there no matter how the market is doing.”
Gabrielle Olya contributed to the reporting for this article.
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