The first bit is easy.
Any decent adviser will preach the diversification gospel, and if you’re a smaller investor, there are index funds that make this suggestion easy to follow.
Those with more capital have the luxury of using a combination of funds and direct shares, allowing them to tailor a portfolio more specifically to their needs.
That could mean dialling up the income generation, targeting parts of the market that offer better growth or aligning a portfolio with sustainability goals.
The main thing is to spread your risk and cover your bases, rather than being too concentrated.
In 2022, the energy sector surged while technology slumped 29 per cent, but this year tech stocks have rebounded 46 per cent and energy has been one of the weaker sectors.
Unless you’re good enough to pick next year’s winners and losers, you’re better to play it safe and hold a bit of everything.
The second piece of advice can be harder to follow.
Keeping your eye on the long game is much more difficult than it sounds, especially during periods of uncertainty (which come frequently).
However, it’s non-negotiable, and if you don’t feel you can stick it out for at least five (if not 10) years, the sharemarket isn’t the right place for your money.
The thing with financial markets is that the further ahead you look, the more predictable things become.
Since 1945, the annual return (including reinvested dividends) from US shares has been 11.2 per cent, and the market has been up in 60 of those 78 years.
That’s an impressive return and a solid hit rate over eight decades, although the short-term variations have been significant.
The strongest gain in a 12-month period was 60 per cent (that came in 1983), while the biggest decline was 43 per cent (during the Global Financial Crisis in 2008 and 2009).
Things look a lot less scary if we group them into 10-year holding periods.
The proportion of positive returns jumps to 97 per cent, while the range of best and worst per annum performances narrows to 20.8 per cent and -3.4 per cent.
Move to rolling 20-year blocks, and this share investing gig starts to look straightforward.
US shares have delivered positive returns 100 per cent of the time. The best per annum return over a 20-year period is 17.9 per cent and the lowest 4.8 per cent.
The results are similar for New Zealand shares.
Looking at quarterly returns for our headline sharemarket indices going back to the 1960s, there’s never been a 10-year period where the market has been down.
This is the real secret to share investing, and it’s not rocket science. If you’re well-diversified and you maintain a sensible investment time horizon, your chances of success increase dramatically.
Markets are impossible to predict over days, months or even years, but the returns you’ll get and the volatility you’ll need to tolerate to achieve them become much better the longer you stick around.
A well-constructed share portfolio will just about always perform well over the long term. The hard bit is keeping that in mind when there is a long list of things to worry about in the here and now (which is most of the time!).
It’s simple, but I never said it was easy.
Mark Lister is an Investment Director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision, Craigs Investment Partners recommends you contact an investment adviser.
