-6.5% real rate of return less 1.4% expense ratio for mutual fund investor.

=Real Rate of Return of 6.1% for self directed portfolio grows to $590,829

=Real Rate of Return of 5.1% for mutual fund portfolio grows to $444,715

The Difference is over $146,000!!!

In other words, over a 30 year period, an increase in expenses of 1% can cost your portfolio more than the original principle!

7. Use Compounding to Your Advantage

Compounding or exponential growth (they mean the same thing) is a powerful financial concept. Understand how it works for you and why dividend growth compounding multiplies the value of compounding.

It’s equally important to understand the devastation of reverse compounding. The more of your portfolio you lose the harder it is to make it back because you lose your principal. A 10% loss only requires an 11% gain to get back to break-even. However, a 50% loss requires a 100% gain to get back to break-even.

8. Employ Risk Control Strategies

Because it is so important to not lose your principal you must employ risk control strategies. Portfolio volatility is an investment return killer. If you don’t control risk you will suffer greatly in bear markets. Avoiding large portfolio drawdowns should be one of your preeminent investing principles.

Related: Sustainable Investing: How Trend in Warming World

9. Anticipate Market Volatility and Make it Your Friend

Despise portfolio volatility but embrace market volatility. You can control portfolio volatility but you cannot control the inevitable volatility of investment markets.

Therefore, you should be prepared to take advantage of investment opportunities. At the same time, you need to be cognizant of overvalued assets and be willing to move to cash when conditions are unfavorable.

10. Control Your Own Destiny

No one cares about your money more than you do. Wall Street fraud, conflicts of interest, and outrageous fees make self-directed investing an attractive alternative.

Technology and the internet have brought down transaction costs and provide the means to get information and guidance at a very low cost. There has never been a better time period for the self-directed investor who is willing to put a little effort into investing.


This article has been republished with permission from Arbor Investment Planner.