An economic moat represents a unique advantage that protects a business from intruders and upstarts, who may try to duplicate its business model in an attempt to capture customers and destroy profits. Billionaire investor Warren Buffett is credited with coining the term, explaining that when evaluating a company, he looks for “economic castles protected by ‘unbreachable’ moats.”
According to The Motley Fool, financial data firm Dalbar has found that “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.”
In the past, particularly as a younger investor, I noticed that I may feel inspired to invest in fast-growing, popular businesses when shares are in high demand; at other times, I may feel compelled to get rid of faltering, downward-trending companies with depressed stock prices. And, even though my feelings didn’t typically drive me to act on these feelings, I often felt anxious during times of market turbulence.
Over the years, I have become more adept at making intentional investment decisions, driven by long-term goals not short-term angst or excitement. Plus, I have learned not to let day-to-day market moves dictate my mood. Here are practical ways I have learned to keep emotions in check when investing:
For many years, Schwab has offered wealth management services, including managed portfolios and custom advice. However, the more traditional model of delivering these services at the entry level has involved packaging a diversified portfolio of mutual funds and ETFs with a minimum investment of $25,000 and asset management fee of .90%.
The automated “intelligent portfolios” allow smaller investors to gain access to advisory services with no direct charges to their accounts. Learn more about these portfolios.
If you invest in your 401(k) and stay invested, your account balance can grow to $1 million or more. According to CNBC, about 72,000 people have reached the status of 401(k) millionaire at the end of 2014.
But before you can accumulate a healthy retirement account balance, you need to decide how to invest your 401(k) dollars. Based on my readings, many struggle in selecting investments. Here are action steps that may bring clarity and offer guidance in making a decision:
Selling a stock at a gain may be cause for celebration. But depending on my income level in a certain year and the type of account in which I held the investment, I may owe as little as 0% or as much as 20% of my profit in federal income taxes.
In general, I should focus on finding the best stocks for my portfolio and ignore the tax consequences of buying, selling, and holding investments until its time to file my taxes.
But taxes, like investment fees, can erode my investment growth and detract from my net worth. So I should consider what sorts of taxes apply to my investments (if any) so I can devise and implement a tax-efficient investment strategy.