5 Things Every Investor Should Know

A recent survey commissioned by the Federal Reserve found that 31% of respondents have no retirement savings or pension, including 19% of those ages 55 to 64, and 25% didn’t know how they will pay their expenses in retirement.

Beyond saving more during our working years, the most effective way to break this chain of unpreparedness is to invest — and, it’s important to add, to do so profitably. With this in mind, I’ve drawn up a list of five things that all investors should know to increase their chances of succeeding in the market.

1. We’re programmed to fail
This may seem like a dispiriting way to begin a list about how to invest, but recognizing that the vast majority of us are biologically designed to fail is critical if we want to avoid doing so. It’s for this reason that Warren Buffett implores investors to be “greedy when others are fearful and fearful when others are greedy.”

2. Few of us will beat the market
We have learned that the greatest losses occur after a market decline. Investors tend to sell after experiencing a paper loss and start investing only after the markets have recovered their value. The devastating result of this behavior is participation in the downside while being out of the market during the rise.

3. Trading stocks is a losing proposition
We should take it as a hint that one of the seminal papers in the field of behavioral finance is titled “Trading Is Hazardous to Your Wealth.” Beyond showing that trading stocks is a losing proposition, the authors demonstrate that it’s also a matter of degree.

4. Beware of experts (and the financial media)
The problem is that the mainstream financial media isn’t designed to help you invest better. Its purpose is to entertain you. And oftentimes that’s accomplished by making things seem simpler and more certain than they really are.

5. Time is your “last remaining edge on Wall Street”
The truth is that genuine investing is a lucrative and worthwhile activity. You just have to do it the right way by taking advantage of what my colleague Morgan Housel calls your “last remaining edge on Wall Street.” What Morgan’s referring to is time — that is, your investment horizon.