How to Invest Money: This Secret Could Save You Thousands

By Markets Fool.com

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The secret of how to invest money is so simple these kids could get it right. Photo: Flickr user Mike King.

Here at The Motley Fool, we try to avoid giving blanket advice on investing, because there are as many paths to financial independence as there are potential investors. That said, I'm about to give you some blanket advice that not everyone will follow but that could save the average investor thousands -- if not hundreds of thousands.

What's my simple secret to saving huge sums of cash? Once you buy a stock, resolve not to sell it -- ever.

Don't believe me? Look at the stats
As fellow Fool Morgan Housel pointed out in October, Fidelity Investments studied its clients' accounts to see which types of Fidelity investors saw the highest returns. Believe it or not, the investors who came out on top were those who had forgotten they even had brokerage accounts at Fidelity.

The reason for this, Housel claims, is pretty simple: "Investing is all about controlling your emotions. The more you pay attention to every detail around you ... the more you can make up stories in your head to believe whatever you want, and the less control you have over your emotions."

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In the end, Housel says, blissful ignorance can actually be the key to investing success. I'd have to agree with that, not only because it can improve performance, but because it gives more time to focus on the things that really matter in life.

But that's theaverageinvestor!
Many an experienced investor will, if even unconsciously, disregard these findings because they apply to the "average" investor. Take us Fools, for example. Our bread and butter is researching and talking about investing ideas, so it isn't a stretch to consider us "above average" investors.

But consider the fact that in May of 2014, David Gardner -- co-founder of The Motley Fool and co-leader of our flagshipStock Advisor newsletter -- had his team go back and crunch the numbers on his own sell recommendations. At the time, his average pick had returned 210% (since 2002) versus the S&P 500's 51% return. However, had he never suggested selling any stocks at all, his average return would have been even higher -- an even more astounding 261%!

That's enough to convince me that during 2015, I won't be selling any of my positions. Unless...

A few important exceptions
Obviously, the "never" part in "never sell" is a little hyperbolic, as one of the reasons people invest is so they can eventually sell their holdings and use the profit as they please. So let me clarify by offering up the three situations in which selling a stock might actually make sense:

  1. When you need the money for living expenses.
  2. When owning a stock keeps you up at night. Investing is supposed to serve you, and losing sleep just isn't worth it.
  3. When you have a high-conviction stock you want to buy, and you need to raise funds to do it.

It's worth mentioning that the second point should become less and less important as time goes on. If you are truly getting to know yourself as an investor, you won't be making any purchases that will scare you in the first place.

And on the third point, selling one stock to buy another can become a slippery slope. It's probably best to write down your reasons for wanting to make a certain move and then come back to it a week later and see if you feel as strongly.

In the end, this is probably impossible advice to follow 100% of the time, as we're only human. But for most, adopting this mind-set would be a fantastic starting point.

The article How to Invest Money: This Secret Could Save You Thousands originally appeared on Fool.com.

Brian Stoffel has no position in any stocks mentioned. The Motley Fool recommends Quality Systems and Yahoo. The Motley Fool owns shares of Yahoo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.