My Top-10 Personal Investing Tips

I have been investing since the early 1980 and have developed some pretty strong notions about what works and what doesn’t.  Here are my Top-10 tips:

1. Start in twenties. Time value of money is amazing.

2. Have the stomach for risk.  If no risk, then put in 1-2% savings accounts.

3. Don’t try to beat the market.  Set goal to match it.  4-5% for conservative portfolios or 8-10% for aggressive portfolios.

4. Diversify through comprehensive asset allocation based on age and risk profile. “Be the world.”  Re-set allocations to target levels once per year. Learn and apply the various asset classes: stocks (value, growth, balanced), bonds (muni, treasury, TIPs corporate, junk), inflation and downturn hedges (commodities, precious metals, real estate), international (developed and emerging).

5. Don’t chase the market ups and downs.  Use “dollar cost averaging” to be in the market in good times and bad.

6. Don’t become dependent on financial professionals – “The stockbroker services his clients in the same way that Bonnie and Clyde serviced banks.”

7. Use discount brokers, trade yourself online, and buy indexes through electronically traded funds (ETFs) or mutual funds with low-cost fees. Don’t invest in individual stocks unless you have $100,000 to invest because you need 20 stocks to diversify, or about $5,000 per individual stock.

8. Invest in tax-deferred and capital-gains-advantaged retirement plans such as company 401K, Roth IRA, Individual 401K, Individual IRA, 529b college savings accounts

9. Don’t chase gimmicks or latest stock tips from friends, family, or TV commentators.

10.  If you get the gambling bug for individual stocks, limit them to 5-10% of your portfolio.

I’ve read scores of business books and recommend this one above all others: The Four Pillars of Investing: Lessons for Building a Winning Portfolio, by William Bernstein.  See my book review of The Four Pillars of Investing.

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