Key Principles to Help Improve Your Odds of Success
While many investors get caught up in trying to time the market or chase the latest hot investment, academic research has identified ten key principles that can significantly improve your odds of investment success. From embracing market pricing to managing your emotions during volatility, these strategies focus on what you can control rather than what you can’t predict. Below, we’ll explore each principle and show you how the financial markets have consistently rewarded investors who stay disciplined and think long-term.1. Embrace Market Pricing
Financial science has taught us that the market is an effective information-processing machine. Each day, the world equity markets process billions of dollars in trades between buyers and sellers—and the real-time information they bring helps set prices.2. Don’t Try to Outguess the Market
The market’s pricing power works against stock pickers and market timers: Only 17% of US-domiciled funds beat their benchmarks over the past 20 years. In contrast, by using information in prices, 84% of Dimensional funds have beaten their benchmarks in that time.3. Resist Chasing Past Performance
Some investors make choices based on past returns. Yet past performance offers little insight into future returns. For example, stocks that have grown to be among the 10 biggest in the US have tended to lag the overall market after reaching that size, failing to maintain their strong performance.Average Annualized Outperformance vs. S&P 500 of 10 Largest US Stocks, 1927–2024
4. Let Markets Work for You
The financial markets have rewarded long-term investors. People expect a positive return on the capital they supply, and the stock and bond markets have provided growth of wealth that has more than offset inflation, as this chart of the past 50 years shows.Growth of a Dollar, 1975–2024 (compounded monthly)
5. Target Higher Returns
Academic research into decades of stock and bond returns has identified long-term drivers of outperformance. By investing systematically in the areas with higher expected returns, you can aim to beat the market.6. Diversify Internationally
Holding a globally diversified portfolio can broaden your opportunities beyond your home market—putting you in a better position to capture higher returns wherever they appear.Home Market Index vs. Global Market Index
7. Avoid Market Timing
Research has shown there’s no reliable way to time the market—targeting the best days to be invested or moving to the sidelines to avoid the worst days. It has also shown the impact of being out of the market even for a short time. Staying invested helps ensure you’re in position to capture long-term gains.Growth of $1,000 Invested from Jan. 1, 2000, to Dec. 31, 2024
8. Manage Your Emotions
When markets go up and down, many people struggle to separate their emotions from investing. Reacting to current market conditions may lead to making poor investment decisions.9. Look Beyond the Headlines
Daily market news and commentary can challenge your investment discipline. Some messages stir anxiety about the future, while others tempt you to chase the latest investment fad. When headlines unsettle you, consider the source—is it news or entertainment? Do yourself a favor and tune out the noise.10. Control What You Can Control
Work with your financial advisor to stay focused on actions that add value. While you can’t control which way the market will turn, following time-tested principles can lead to a better investment experience.- Create an investment plan to fit your needs and risk tolerance
- Structure a portfolio along the dimensions of expected returns
- Diversify globally
- Manage expenses, turnover, and taxes
- Stay disciplined through the market’s highs and lows
