Investing in ASX shares in 2018 has been a nauseating ride.
After looking strong just a few months ago the S&P/ASX 200 (INDEXASX: XJO) is currently down 7.6% for the year, which has been marked by some swings;
- Shares in major banks and other financial pillars like AMP Limited (ASX: AMP) were shredded on revelations raised during the Royal Commission into misconduct in financial services.
- Some of last year's surging 'hot stocks' were exposed as charades of manipulation, misinformation or outright lies. There are plenty of lessons for us to learn from the likes of Blue Sky Alternative Investments Ltd (ASX: BLA), GetSwift Ltd (ASX: GSW) and BigUn Ltd (ASX:BIG).
- The price of oil rocketed, then plummeted back to where it started the year.
And that's before we even get to bitcoin.
Ignore investing fads in 2019
Many of the failures of 2018 once fueled stories of easy riches and overnight success in 2017. Remember the provocative New York Times headline "Everyone is getting hilariously rich and you're not"?
Investing to grow wealth is a long-term process, so it is important to keep things regular and simple.
The process is significantly weakened if we cannot ignore the fads, noise and news headlines designed to cloud our judgement and put us on an emotional tilt.
Make compounding returns the focus of your investing
The magic formula of investing is not overnight success, but compounding growing returns over time – a secret which has been true for decades.
For me that means owning shares in growing businesses like Xero Limited (ASX: XRO) and Gentrack Group Ltd (ASX: GTK), reinvesting dividends and avoiding companies I don't understand.
Prepare yourself for whatever 2019 brings
As volatility returns to asset prices, take the time today to prepare for whatever might come in 2019. For me that means:
- Paying down debt to build a rock-solid personal balance sheet.
- Selling the dogs in my portfolio. If a business can't thrive today, how will that improve if costs start to rise or economies get unexpectedly worse?
- Preparing a watch list of top quality companies I want to own if prices fall further. This is both prudent and gives me something positive to focus on if markets do tank.
To what lies ahead
Yes, investing is hard and the allure of easy riches is difficult to tune out, but I expect the age-old rules of business-like investing and long term compounding to endure.
