Don’t be a Trader, Be an Asset Allocator

Categories:Personal
Bruce Fenton

Focusing on a long term plan almost always beats a focus on charts and short term moves

Investment selection is the most important part of your financial plan. Every investor should have a written plan which covers a pie chart allocation of the major investment categories they invest in. This should be based on an overall financial plan accounting for the risk tolerance and goals of the investor.

Trading is often antithetical to sound planning and also increases the chances of deviating from long term financial and allocation plan. I’m particularly referring to day trading or short term trading. Big picture macro investing comes down to trades and being a “trader” sounds cool. But typically your net worth will be higher the less trading and more investing you do.

Trading is a profession or vocation, not an investment allocation technique or planning strategy. This doesn’t mean you can’t do well at trading, of course you can. Some of the richest people on earth are traders. But trading is a job that depends on you finding price movements that others won’t find and acting on them. To do that with any consistency is hard work.

Because day to day trading takes so much time it drains from other activities which could increase cash flow or lead to better long term investment decisions. Far better to work on a vocation and have your money work for you more passively by using a buy and hold strategy, an investment advisor or actively managed funds. These methods allow investors to save time for work or personal time.

How do you do this?

  • Have a written financial plan
  • Diversify, be patient and be selective
  • Either delegate trading to professionals or dedicate yourself to becoming a world class profession who is better than anyone you could hire

Spend an the time and effort on planning, it’s worth it and will save you a lot of time on charts.