By: Angela Brown

For many households, entering the world of investing can be intimidating. Much of this is due to misinformation surrounding investing strategies, causing many to think they must make aggressive investments and attempt to time the market to achieve meaningful financial growth.

However, this isn’t always the case—and quite often, it can backfire and result in financial losses or missed growth. I recently had the opportunity to interview Ramsey Brock, president of Brock Asset Management. As Brock explains, conservative, low-cost growth has long been one of the recipes for success and may continue to deliver meaningful results for investors today.

What Is a Conservative Investing Strategy?

“A conservative investing strategy focuses on preserving your capital by protecting the value of your portfolio,” Brock explains. “Rather than chasing high-risk stocks, it focuses on lower-risk investment options such as bonds, fixed-income securities, so-called ‘blue chip’ stocks, or mutual funds that track a market like the S&P 500. These investments may provide more stability, helping to manage potential risks to your portfolio over time..”

Aside from the types of assets added to an investment portfolio, a conservative investing strategy is also usually defined by how trades occur. “With a conservative investing strategy, the goal is to take the emotion out of your investing decisions,” Brock says.

“So, instead of trying to time the market to maximize your returns, you focus on long-term growth by making consistent contributions to your portfolio, regardless of external market conditions. This allows you to grow your portfolio value through compound interest steadily. The idea is to maximize your time in the market before retirement or another major financial goal.”

To achieve this, Brock recommends that conservative investors set up automatic contributions to their portfolio, which allows them to essentially take a “set it and forget it” approach to making investment contributions.

The Power of Patience in Conservative Investing

A more conservative approach to investing has historically generated positive results for investors. For example, the average annualized return of the S&P 500 from 1957 to 2023 was 10.26% — even accounting for down years stemming from recessionary periods. If someone invested in a fund that tracked the market, they would have enjoyed an average of over 10% growth to their portfolio each year.

This stands in sharp contrast to more aggressive investing strategies, which tend to deliver lower returns. Research from Morningstar reveals that attempting to time the market generally caused investors to lose roughly one-fifth of the returns they would have gained if they had simply held their initial investment. 

The problem is that most people don’t know how to time the market successfully — and even experienced investors can make mistakes that negatively affect their returns. Trying to time the market is often influenced by emotional responses to the news or other factors, leading to unwise decisions.

As Brock explains, a conservative investing approach helps prevent such mistakes while allowing investors to use compound interest.

“Spending time in the market is much more reliable than trying to time the market. Spending time in the market allows you to take advantage of compound interest. With compound interest, you can earn interest on both the money you’ve invested into your portfolio and the interest it has already generated. By patiently continuing to invest funds into your portfolio — especially with the help of automatic investing — you can earn much higher returns over time, putting you on track for retirement or other financial goals.”

How a Conservative Strategy Lowers Investment Costs

While returns from financial investments are never guaranteed, Brock notes that a more conservative strategy may help improve outcomes by lowering portfolio expenses.

“Investing often carries hidden expenses that new investors don’t consider, such as transaction costs and sales charges incurred when you make a transaction. In addition, more active portfolios may carry higher expense ratios to cover the management fees and administrative costs associated with the account. These can significantly reduce the returns you receive from your portfolio — particularly if you make frequent transactions as part of a more aggressive strategy.”

Even when such charges seem minor, the costs can add up over time. In addition, making frequent transactions can also result in additional tax charges that an investor wouldn’t experience if they used a retirement account or simply reduced their overall transaction activity. 

Short-term capital gains, which are more common with frequent investing actions, are charged like ordinary income tax because they were held for one year or less. Simply holding an investment for longer than a year provides access to long-term capital gains taxes, which have a lower rate and allow you to keep more of your investment.

Setting Yourself Up for Success

A conservative investing strategy may not seem as flashy as making frequent trades for big gains, but as Brock’s insights reveal, the conservative approach typically offers much stronger (and more reliable) long-term results.

You can achieve your financial goals by adopting a conservative approach that potentially lowers your investing costs and supports steady returns.

Disclaimer: This content is for informational purposes only and is not intended as financial advice, nor does it replace professional financial advice, investment advice, or any other type of advice. You should seek the advice of a qualified financial advisor or other professional before making any financial decisions.

Published by Jeremy S.