As soon as you are out of debt and have an emergency fund to cover life’s unexpected twists and turns, it’s vital to jump on it and start investing!

Most people get so caught up in worrying about the market, volatility, specific companies, and security versus risk, they don’t recognize the most important factor for successful equity (stock market) investing.  What’s most important, more than all of these?

Your behavior.

That’s right, investor behavior, more than market conditions or specific companies financial performance, is the most important factor for successful investing!  Your willingness to invest, and keep investing, is key to being able to gain a significant return.

I am a firm believer in the “buy and hold” investment strategy.  We need to “buy” – collect equity investments (ownership of companies) – and “hold” – keep them through the ups and downs of the market.  You’ve heard the tail end of the news reports: “The Dow Jones Industrial Average was up 219 points, the NASDAQ up 45, and the S&P added 9.”  Just as often it seems, “The Dow was down 94 today, the NASDAQ down 30, and the S&P was off 12.”

The market goes up, and down, and back up.  Like the Stephen Tyler, “I know that nobody knows where it comes from or where it goes.”  You cannot predict the timing of the market!  No one can!  Warren Buffet himself said, “I’ve never met a man who could forecast the market.”

While we can’t forecast the market, we can see from history that the stocks, as an asset class, have averaged about an 11% return from 1926 through 2011.  It took a lot of ups and downs to get there, though.    The way you win through those ups and downs is to buy, and keep buying, then hold, and keep holding.

Once we buy, we don’t need to keep messing with our investments, just hold them.  Don’t “tweak” your portfolio often, as we’re tempted to do.  If I need to rebalance and buy more of certain types of mutual funds, I keep what I’ve got and then just buy more of what I need, and I don’t want to do this too much.

Investment advisor Nick Murray says in his excellent book Simple Wealth, Inevitable Wealth, that “‘Tweak,’ in this context, is a very precise, technical investment term which translates, ‘Tear off one of its legs and try to beat the portfolio to death with it.'”

Buy when it’s up, buy when it’s down; then hold, hold, hold, so the investments have time to grow, grow, grow.  The easiest way to start investing effectively is to do the following:

1) Fill out the paperwork with an investment advisor or your workplace to open your investment account.

2) Choose at least four different funds with long-term track records (10+ years) with at least 8-12% historical return.  Dave Ramsey’s suggested allocation of 25% to Growth, Growth-and-Income, Aggressive Growth, and International is a simple and effective allocation.

3) Setup a payroll deduction or automatic draft from your checking account each month.

4) Never stop.  Ever.

5) Hold your investments so they have time to grow.  Don’t sell!

Nick Murray says:

Hold them, no matter how sick the market looks.  Hold them, regardless of the economy, or interest rates, or oil prices, or hemlines, or whatever.  Hold them, when all about you cry, “This time it’s different.”  Hold them, when fear is a constant taste in your mouth, and every fiber of your being cries, “Get out; get to safety.”  Hold them, most, when everyone you know is selling them, and telling you to your face that you’re crazy to hang on.  Hold them, just for one more day.  Then tomorrow, hold them for just one more… Hold them, finally, because that’s the only way to wealth for you and for the generations of the family you love.