Self-directed investor Regan Pearson proposes some essential investing tips that stand the test of time.

The art of investing is older than you could possibly imagine.

The world’s first stock exchange, the Amsterdam Stock Exchange, is over 400 years old. The New York Stock Exchange (NYSE) is, by comparison, is a mere toddler at 200 years old. The NYSE was founded in 1817, and just five years earlier Napoleon was marching 400,000 cold and weary French soldiers across Europe to capture Moscow. 

After all this time, there are certain investing lessons we’ve learned and to help you along your investing journey, here are my top tips.

1. The market goes up on average 3 out of every 4 years

Over the last 90 years, annual returns of the S&P 500* have finished up almost 75% of the time. Another way of saying that is the market goes up, on average, 3 out of every 4 years. Of course, it doesn’t usually happen that cleanly - sometimes there are several down years in a row. But it does offer a compelling reason to invest in the share market and have a long time horizon.

*The S&P 500 includes 500 companies that combined value represents about three-quarters of the US share market which is why it's the benchmark so many investors use to understand what the markets are doing.

2. Simple, low cost investing has outperformed expensive active funds

Time and time again studies have shown that plain, low-cost index funds have outperformed flashy actively managed funds. Research cited by Institutional Investor suggests the percentage of active funds that underperform their benchmark indexes over the long-term is as high as 75%!

The biggest problem is that actively managed funds need to employ very smart people to make investing decisions. The extra costs create a ‘drag’ on returns to investors over time. Passive funds just employ a computer, so the costs of operating index-tracking exchange-traded funds (ETFs) like the S&P 500 ETF Trust SPDR (SPY) or S&P 500 Vanguard ETF (VOO) are by comparison insanely low.

3. The best investors have the greatest emotional control

One thing that hasn’t changed, even since Napoleon’s era, is human nature. Physiologically we are the same fiery, adrenaline-fuelled mortals we were 200 years ago.

Good investors also have patience, understand risk and are lifelong learners. Great investors operate with a sense of detachment, tune out the noise that drives feelings of greed and fear and maintain emotional control.

4. A great company becomes a terrible investment at a certain price

Howard Marks once said that there’s only one intelligent form of investing: to figure out what something's worth and buy it at or below that price. I think it’s true. No company is worth any price. A good question to ask is how long it will take for an investment to pay itself back in earnings (profits the company is generating).

5. Personal finance is more personal than it is finance

Investing works best when it fits us personally. There is only one Warren Buffett, just as there is only one Liz Smith. For all the books on finance secrets and great investors, what actually works for any of us comes down our own goals.

6. You cannot start early enough

The most indisputable investing truth of all is that time is your greatest ally. Don’t procrastinate. Don’t wait for a market drop. Just start. The power of compounding means that today is far more valuable than tomorrow. I certainly can’t see that changing in the next 200 years.

Regan Pearson is a contributing writer for Hatch. The views and opinions expressed in this blog are the author’s own and not necessarily the views or opinions of Hatch.