Treat Investing Like Your Workout Regime
Consistency is the most important factor that determines investing success
Becoming a successful investor takes some luck, but more than anything it takes persistence. Think of investing like a workout: you build your strength and fitness incrementally, learning the right techniques and developing a rhythm as you train.
Some are blessed with good genetics or a lucky stock pick, but every one of us, if we persist, will get the right results.
When you start out investing, you will see your money fluctuate and wonder if you should have simply taken that cash and spent it on some lifestyle purchases. The key is to develop the right mindset so you can push through the ups and downs and build a solid portfolio that will deliver for you into the future.
Just like training in the gym, investing requires consistency, perseverance, and constant learning. Sometimes you need to adjust your approach or experiment with something new. While it can seem overwhelming at first, eventually it will get easier, and as you start seeing real results, you will look forward to putting money aside and deciding how best to put it work.
Investing is no different to working out. Below are seven steps you can take to go from a complete newbie to a seasoned investing professional.
1. Just get started
The first challenge is a mental one. When you’re lifting weights for the first time, or you’ve taken a long break from training, dragging yourself to the gym is the hardest part of your workout. For me, facing the squat rack after spending weeks away from the gym is enough to make me break into a cold sweat.
Knowing the pain that will soon come, even with a relatively low load, is something your brain will desperately try to avoid. “Why are doing this to yourself?” it will ask. “This isn’t worth it. Just go home and play some video games.”
When I walk into the gym after a long hiatus, I do some light cardio then immediately pick a machine. It doesn’t matter which one it is. Like a cold plunge that shocks the body, there’s no better way to get back into it. The less you think about it, the better.
When you’re starting out as an investor, your first goal should be to simply get some exposure to the market. It doesn’t matter exactly what you invest in, so long as it isn’t incredibly risky and doesn’t put too much of your wealth on the line.
Just like you wouldn’t try to deadlift 400 pounds during your first visit to the gym, new investors should not load up on hedge fund products or put half their net worth into risky small cap stocks.
Your goal is not to generate eyewatering returns after six months or double your money with a single stock pick. Your aim is to get used to the idea of investing your hard-earned money in the markets and making it a life-long habit.
Start by picking some well-known, blue chip shares to invest in, or even an index tracking Exchange Traded Fund (ETF). Stay away from the CrossFit and HIIT investments like absolute return funds and derivatives until you have developed a core level of investing fitness.
Simply kicking off the process of investing will get you accustomed to allocating money to your investments, tracking performance, and dealing with the reality of portfolio administration (and, unfortunately, paying tax on your gains).
2. Establish a core set of exercises
Most personal trainers will put beginners on a simple but effective full-body workout program. Starting with the basics is essential, and most will find that they get the most bang for their buck with a handful of core compound exercises.
Even when you start changing up your regime, these core exercises (bench press, squats, pullups) will form the foundation of your workout. Even more advanced gym-goers will try to keep their workouts as simple as they can. In fact, their selection of workouts may not be that different from those of a beginner, but their form and technique will allow them to get more out of them.
When it comes to investing, keep it simple. Start with a relatively small portfolio of shares and build on it over time. Add some bonds to smooth out the risks and help you diversify.
Invest in stocks you know and try to balance these out with companies in different sectors. For example, if you are already investing in Facebook, don’t go and load up on Twitter stocks.
Putting all your eggs in one basket is not a good idea. The gym bros who focus on vanity exercises while skipping every leg day end up with an unbalanced physique. You don’t want an unbalanced portfolio that is loaded up with technology stocks with little or no exposure to other sectors like consumer staples or energy. Your portfolio might look good, but when you put it under stress it will fall over.
3. Stick to a schedule
Putting time aside to exercise is critical to maintain consistency and solid gains. The best advice I got from my trainer was to stop trying to squeeze every ounce of effort from myself at the gym and just focus on consistency.
Building mind muscle connections and training yourself to start expecting and preparing for each workout is half the battle.
Once you’re on the path to becoming a successful investor, don’t stop. Keep putting money aside and contribute to your portfolio on a regular basis. There will be times when you tell yourself that it just isn’t your day, week, month, or year. There will be times when money is tight or we just feel like indulging. This is where routine becomes critical.
Often the expectation of short-term results can be demotivating. Like exercise, investing is a long-term game. You won’t get amazing results overnight. In fact, there will be times when you feel your progress is plateauing. That’s why it’s important to track your success over a long period. Investing is a life-long pursuit, which means success is measured decade to decade, rather than week to week.
Like improving your fitness, investing gets easier as you build wealth. Returns compound over time, resulting in exponential growth over long periods.
Sometimes market volatility and the sheer uncertainty about where the economy will go can be off-putting. Even the most credentialed economists can’t tell you what’s going to happen tomorrow or in a year’s time. That’s not a reason to avoid investing.
Trying to time the market is usually a recipe for disaster, especially with large outlays. Putting money aside and investing it consistently is a proven long-term strategy. Waiting for the clouds of uncertainty to disappear will leave you waiting around for a long time.
4. Learn some of the science
After a year of training you’ve probably developed a fairly sophisticated set of exercises and you’re starting to see some real results. But you still get the feeling that you could be doing things better.
Maybe you want to delve deeper into the biological mechanics that drive muscle growth, learn how to optimise your nutrition, or start focusing more on strength, endurance, or power. This is where learning some of the science behind fitness can help a lot.
I say “some” because there is a very extensive body of literature out there, and not all of it will help you directly. Some studies may even be in direct conflict with each other. But having a grasp of how our bodies work will make it easier for you to select the right exercises for your goals, optimise them for your age and weight, and get your diet and nutrition aligned with what you’re trying to achieve.
Investing is as much an artform as a science, but there are some concepts that you will need to learn and be familiar with.
You don’t have to be a mathematical genius, but getting comfortable with some key concepts will improve your understanding and allow you start applying some more advanced techniques, especially as your portfolio grows.
Things like diversification, the different sources of risk investors face, how to measure performance, and the different methods of estimating a security’s value, are all fundamental to building investing success. For your own purposes, you might not need to dive too deeply into these concepts, but you will certainly need to know why they are important and how they affect your portfolio.
Of course, if all you do is sit around reading about how to get fit and what you should be eating, you’re not going to get anywhere. Someone who is simply committed to regular exercise and a balanced diet will get better results than someone who knows a lot but fails to apply even a small amount of what they know.
5. Don’t be afraid to ask for help
It’s very common to hit a plateau when training. After some early gains, eventually the things that worked before become less effectual. Maybe you start watching what other people are doing in the gym and start thinking you should be doing more of that.
The problem with training alone is that errors can be reinforced and opportunities to improve form and technique can be missed. If we want to get back on track and seeing consistent progress, then getting someone to watch us train and give us tips and advice can be incredibly helpful. It can mean the difference between minimal gains and exploding growth.
Getting advice can be of great value to investors. If you’re not sure if what you’re doing is working, you can consult a financial adviser to get a second opinion and recommendations suitable for your financial position.
Asking for help can be hard. Approaching a stranger in the gym and asking them to spot you can take some courage, especially if you’re lifting half of what they are. But it’s worth it, and you might even pick some useful nuggets of wisdom.
The great thing about personal financial advice is that it’s directly relevant to you and your circumstances. Rather than piecing together investing tips and ideas from blogs, YouTube videos, newspapers, and journals, you can get a professional to advise you based on your objectives and risk preferences. Like a personal trainer, you do have to pay for it, but it can yield serious benefits.
6. Work up to more advanced techniques
If you struggle to run three miles and collapse in a heap at the end, then signing up for a marathon that starts in two weeks might be a bit ambitious. The marathon is still something worth aiming for, but you need to be realistic.
There are some things I would never try doing at the gym because the chances of injuring myself are just too high. Safe, reliable workouts are fine by me. But that doesn’t mean you shouldn’t be setting yourself challenges. It’s incredibly satisfying to work up to a goal and — after months and even years of practice — to finally lift your target weight or crank out 20 pullups in a row.
For investors, there are some more advanced techniques that you can employ once you build up some scale and knowledge.
Portfolio optimisation, growth and value factors, and risk overlays involve technical concepts and won’t be immediately understood by the average investor. They can add value where appropriate, but they are best implemented after building up the right amount of knowledge and experience.
Knowing your limits is important for an effective workout. Lifting too heavy or using the wrong technique can result is serious injury. If you try to do something too clever with your portfolio without the right expertise, you could be adding unnecessary risk and possibly face some hefty losses.
7. Never stop
No matter how old you are, you can always find ways to exercise. Of course, some will be doing it to get ripped while others will be doing to enhance mobility and get the most out of life as they get older. How you exercise depends on where you are in life and what you intend to get out of it, but you don’t have to stop being active.
Investing is no different. Someone in retirement will invest differently to someone who’s in the early stages of their career and looking to growth their wealth quickly. The bottom line is, you should start early and never stop. Investing is something to enjoy throughout your life, and while your goals will change, your commitment and consistency should stay the same.