5 Principles for Successful Wealth Accumulation
in the Stock Market
Five principles that can affect success in investing and maximal portfolio growth ( accompanied by corroborating academic research source ) :
Holding Period Length
The length of time horizon over which an equity portfolio is held can be critical. Research shows that, since 1926, twenty year equity holding periods have produced a 100% success rate of positive returns outcomes. ( Seigel )
Asset Class Selection
As various equity asset classes can be held within a portfolio, research shows that, over a long history, small company stocks representative of the "value" classification ( followed by "Large" value ) have produced the highest returns. ( Fama )
Portfolio Diversification
The higher the diversification / number of stocks within a portfolio, the higher the odds of success and the lower the overall portfolio volatility. ( Markowitz, Bessembinder )
Fees
The levying of unnecessary fees can, over time, reduce terminal portfolio value in a meaningful way. These fees typically include fund management fees, wealth management fees, 401k management fees, etc. For example, a 1% fee levied annually on $1M of assets under management = $180K over 10 years. ( Sharpe )
Behavior
An investor's behavior can affect maximal portfolio wealth accumulation. These behaviors can come in the form of trading ( gambling and lottery effects ), fear of missing out, fear of loss, use of leverage and of exotic products and schemes, etc. ( Barberis, Thaler )