Data Driven Investor: Play the Probabilities to Win in the Stock Market

Investing comes down to probabilities. While investors may look at a runaway stock and simply see dollar signs, a rising stock has a different risk and reward profile compared to one that’s not making a big run.

Professional poker players will consider the odds and lean into hands with a higher probability of winning. Excellent investors will do the same as well. Knowing the odds and how to play them can substantially improve investment returns.

Looking at an investment in terms of a probability means avoiding certainties. What seems certain when investing can, and will, often change.

One way to improve your probability to win with investing is with some income-paying stocks. That’s because dividend stocks tend to have lower volatility, and help investors stay in markets during downturns.

Plus, over time, reinvested dividends could make up as much as half or more of an investor’s lifetime returns.

Besides that, having some diversification across sectors and asset classes helps put the odds on your side.

It’s now infamously known that 2022 was both a bad year for stocks and bonds. However, that was just one of three such years in American history that both assets declined.

Making small changes to improve your investment return can give you an edge. Over time, that edge can add up to substantial improvements for your net worth.

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