A collection of some of the key investing maxims we have assembled together that will hopefully serve as a reminder to stick to your plan whenever the financial markets go through their usual manic-depressive phase. So diving right in…
– Day to day, month to month or even year to year volatility should have zero impact on a well-designed investment plan.
– Avoiding total capital loss at all costs should be fundamental to the way your plan has to be structured.
– Volatility is part and parcel of the investing process and its best to get used to it especially if your investment time horizon is longer than five years. Volatile investments are almost always associated with greater expected returns. Low volatility investments with higher expected returns do not exist.
– Mind your risks i.e., ability to handle volatility. Just when you feel comfortable investing in the markets is exactly the time when the risk that your portfolio will decline is the highest. When do you feel comfortable owning an investment? When that investment is doing well, be it a stock, bond or real-estate.
– Have sufficient emergency reserves to ensure you’re never forced to sell your investments at inopportune times.
– Check your brokerage accounts as infrequently as it takes to avoid making rash decisions. Our advice, maybe once a month and even that is an overkill. A quote from John Bogle…“Try and avoid the worst hazards of behavioral investing. Follow the basic rule that I follow: Don’t peek. Don’t look at your account. Throw those statements in the trash when they come.”
– Invest in a diverse portfolio of stocks and if needed, bonds and other alternative assets with the intent of staying invested for decades.
– Dollar cost average for your entire life and you won’t care what the markets are doing from day to day.
– Try to max out all tax-deferred and tax-free accounts.
– Make sure your material aspirations grow slower than your income. It’s the only way to accumulate wealth.
– Pay no attention to the Joneses. They are crying inside.
– Avoid debt even if you can afford it. It takes away options which is your most valuable asset.
– Save enough of your income so that you can retire at an age your dad started complaining about his back hurting. You won’t want to work after that.
– Your ability to earn income is the biggest asset you have, especially in your wealth accumulation years. So nurture it and look at every opportunity to grow that income.
– The goal of proper investment planning isn’t necessarily more money. The main goal is living life on your terms.
– And last, accept the fact that the future will play out differently than you think it will but there is no reason not to plan for it.