There are costs—explicit and implicit—with managing a long-term investment portfolio yourself. Make sure you know what it takes in terms of time, interest, discipline, and expertise.
As an investor, you're likely aware that there are costs to managing your own money. But there might also be implicit or "hidden" costs that you should consider—like missing opportunities or holding on to losing stocks.
If your investment portfolio isn't delivering as expected, ask yourself whether you have these four traits in abundance: time, interest, discipline, and expertise–or TIDE. Let's talk more about why the TIDE traits are important.
High TIDE vs. low TIDE
- Time is one of the most vital traits. As traders and investors, you must consistently dedicate enough time to execute your plans.
- Interest is equally important. You need to want to spend the time you have available on managing your money. Should your interest in investing fade over time, it's likely your results will fade as well.
- Discipline helps you stick to your plan in the face of market volatility or other hiccups. To be disciplined, consider:
- Screening: As you look to add new positions, what are the criteria you'll use to come up with a list of candidates?
- Researching: As you look to narrow down your list, consider using both:
- Fundamental analysis: How is the company doing as a business? (What to buy)
- Technical analysis: What is the trend in price of the stock? (When to buy or sell)
- Establishing buy and sell rules: As you look to place a trade, determine how much you'll buy and how you'll buy it. Identify how you will cut losses and capture profits.
- Monitoring: Determine how often and in what manner you'll review your portfolio.
- Expertise is as important to managing your long-term investments as it is to managing your trades. There's no shortage of resources available to help you learn about investing, whether you're looking to beef up your understanding of a new asset class, sector, retirement strategy or other subject. But you have to want to put in the time.
Now ask yourself:
- Are you making goal-based decisions?
Establishing clear financial goals and creating a plan to achieve them is our first Investing Principle at Schwab. When you don’t take the time to write down your financial goals and how much savings it will take to achieve them, you’re less likely to stay on track.
- Have you determined your exit points?
Another of Schwab's Investing Principles is to build in protections against significant losses. With trading, we often preach the importance of having a sell discipline—or setting specific exit points for selling a stock, which can help guard against losses. Emotions like fear and greed can rule our longer-term investing decisions, if we let them. Fear can force us to make ill-timed decisions that derail our financial plans. Greed often pushes us in the opposite direction, causing us to take too much risk or load up on concentrated stock positions hoping for a home run. For example, without a sell discipline, you may be holding on to losing stocks—which may not only may cost you in the short term, but you may not reach your financial goals over the long term.
- Do you have a diversified portfolio?
Building a diversified portfolio and rebalancing your portfolio on a regular basis—two other Schwab Investing Principles—are proven methods that can help investors reduce volatility and likely stem portfolio declines. Meanwhile, regular rebalancing helps keep single investments or asset allocations from having too much influence in your portfolio. Each of these tasks takes time, interest, and discipline, along with a commitment to getting better at it by developing a routine (i.e., expertise).
Find your path
If you have the TIDE qualities that enable you to help reduce those indirect costs of investing, then you're at a good starting point to pursuing your financial goals. But if you find yourself struggling to find the time, stay interested, remain disciplined, or lack expertise, you may want to update your goals with the guidance of a financial professional and schedule an annual portfolio check-in to determine whether you're on track to meet those goals.
Learn more about behavioral finance.
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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
Investing involves risk including loss of principal.
Diversification and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets.
Rebalancing does not protect against losses or guarantee that an investor’s goal will be met. Rebalancing may cause investors to incur transaction costs and, when a non-retirement account is rebalanced, taxable events may be created that may affect your tax liability.
Schwab does not recommend the use of technical analysis as a sole means of investment research.
The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.
