This article was first published in the Globe and Mail on January 13, 2024. It is being republished with permission.

by Tom Bradley

“I will be a steady, long-term investor.”

It’s easy to say and difficult to do. Particularly in the past few years. Think about what we’ve been through. In 2020, markets plunged when the pandemic hit and then quickly recovered, finishing the year well into positive territory.

2021 was the most speculative year I’ve seen in my 40 years in the investment business. It was hard not to suffer from FOMO as exciting growth – profits be damned – was the order of the day.

2022 was the opposite. Reality set in and investors prioritized profits and strong balance sheets. It was a down year but had a few positive runs, including a strong finish.

And then last year, the rebound continued, but again, it wasn’t a straight line. The stock market bobbed and weaved as expectations for inflation and interest rates flipped back and forth.

The swings were enough to make your head spin but they weren’t unprecedented. There are always risks to worry about. Stocks regularly zig and zag on their way to higher levels. And sometimes, there’s a bright shiny object that captures investors’ imagination and lures them in another direction. I’m referring to trends and products such as cannabis, crypto, AI, and more recently, higher-yielding GICs.

The point is that there’s a big gap between talking about sticking to a plan and actually doing it. Indeed, Joe Wiggins, a keen observer of investor behaviour and regular blogger, says “taking a long-term perspective is the most severe behavioural challenge that investors face.” Meeting the challenge means “frequently ignoring issues that we and everyone believes – at that moment – are absolutely critical. No wonder so few investors can do it.”

In this vein, I’d like to offer a few suggestions that will improve your chances of being a disciplined, long-term investor.

Pick a destination. You can’t stay on track if you don’t know where you’re going. Every decision should be made in the context of a plan that clearly defines the purpose of the money and when it will be needed. This helps determine what risk is to you. If the money is for near-term spending needs, then a weak stock market is a risk. If you’re making contributions to build your wealth for retirement, that same weak market is a godsend.

SAM is your friend. A strategic asset mix, or SAM, is a key part of any plan. It defines the mix of stocks, bonds and cash that best fits your goals and personality. SAM should encompass all your financial assets – TFSAs, RRSPs, company or government pensions, income properties, emergency reserves. It gives you a framework to act or, in most cases, not act, as you run the investing gauntlet.

Zoom out. You’re barraged with stock charts that go back five days, a month, or a year. None of them align with your investment time frame. Take a moment to go online and look at the path of a diversified portfolio, or the market indexes, over 10 years and longer. You’ll find that the critical issues Mr. Wiggins referred to disappear into a general trend that goes up and to the right.

Prepare to be contrarian. You know your portfolio will go through both wonderful and dreadful periods. You know it will be difficult to do the right thing in the heat of the moment. And you know what decisions you’ll need to make, perhaps topping up a spending reserve when markets are strong or sticking to your contribution schedule and averaging down when they’re weak. To do what you want to do, you need to prepare ahead of time when urgency is low and you’re feeling calm.

What’s love got to do with it? Emotion is an investor’s worst enemy, so instead of agonizing over where the market is going (which is impossible to do consistently), put your investment process on autopilot. Set up automatic monthly contributions and establish a routine to review your portfolio quarterly and meet your adviser annually.

K.I.S.S. According to Mr. Wiggins, simplicity reigns. “The idea that adopting a long-term approach to investing can have a profound positive impact on our results can seem perverse. How can something so easy – doing less/paying less attention – lead to better outcomes?”