Five tips to ride out investing volatility

History's best investors - the Warren Buffetts and Bill Ackman's of the world - all have one thing in common: they take a principles-focused approach to investing.

It's arguably these principles that have allowed them to tune out the noise when markets are volatile and invest successfully over the long term.

We've compiled five of the most important long-term investing principles - based on thousands of hours of reading and research - to help you navigate the short-term volatility we're seeing in markets right now.

1. Remember that the second best time to invest is today

While the best time to invest was yesterday, for long-term investors, it's getting started investing and staying invested over the long term that is most important.

According to research by Charles Schwab covering market data from 2001-2020, even if you consistently made badly timed investments, you'd still be US$76k better off than if you had not invested at all - stayed in cash.

Those who took a dollar cost averaging approach to investing were US$90,000 better off than those who stayed in cash, and for those rare folk who timed the market perfectly you'd be US$107,000 better off.

The key takeaway: start investing today, because even if you do it badly, the research shows you'll be better off than if you had done nothing at all.

2. Understand why you invest

Understanding why you invest, including what your investment goals are as well as what type of investor you are will help you be successful over the long term.

If you're investing to build a retirement nest egg you might be more inclined to invest in riskier and longer-term focused assets, like stocks. If you were saving up for an engagement ring, however, you'd likely want to invest in a less risky and more consistent asset, like bonds.

By knowing exactly why you're investing and making your investments accordingly, you'll be less likely to make emotionally charged decisions in the short-term that could otherwise hurt your ability to achieve your investment goals.

3. Know your circle of competence (and stick to it)

When it comes to successful investing, knowing yourself - including your risk tolerance, investment style, and how you react to different market conditions - is key.

This is the reason that Warren Buffett didn't invest in Microsoft during the company's early days: he didn't understand the tech behind it. In technical terms, it was outside his 'circle of competence'.

For individual investors, if you want to invest in single stocks, like Tesla, Apple, or CBA, ask yourself: are you willing to put in the work to monitor the market, research the stock, and truly understand its business and the competitive market dynamics.

If you're not willing to put in the work, it's probably best to stick to passive products like broad-based ETFs, which have delivered investors handsome returns over the long term.

4. Diversify, diversify, diversify

Are your investments diversified or do you just think they are? If you're invested in an ASX 200 ETF, for example, you actually have heavy concentrations in the mining, banking, and healthcare sectors.

And while an ASX 200 ETF is made up of a lot of stocks - give or take 200 - diversification isn't just a numbers game, especially if a majority of stocks are all in similar industries!

Rather, investors looking to achieve long-term investing success should take a holistic approach to diversification, including thinking of diversification in terms of different asset classes, geographies, sectors, and even time horizons.

The key takeaway: don't just put all your eggs in one basket.

5. Think like a marathon runner

Are you a short-term investor in disguise?

A long-term investing time horizon is generally considered 10+ years, but for legendary investors like Warren Buffett - it goes even beyond that - with Buffett musing that his 'favorite holding period is forever'.

As with our first principle, taking a truly long-term mindset allows you to benefit from asset growth, compounding, and smoothing out the volatility that will arise when you invest. And while your personal holding period might not be forever - thinking in decades not days can help you unlock the biggest benefits of investing in the stock market.

There is one caveat to this point, however, and that is that you should review and if necessary rebalance your portfolio semi-regularly to make sure it's still in line with your objectives and goals.

Maybe Nvidia has become a huge weight in your portfolio following its massive share spike, or maybe those long-term stocks you bought when you were 35 might not be so suitable if you're looking to retire in the next year or two.

Check-in often but remain focused on the long term.

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