Build a good plan and do not waver from that plan. Market conditions and your stage in life will require gradual changes but wholesale rewiring of that plan based on short-term events, never.
Permanent capital loss is the most important risk. Guarding against it should be fundamental to the way you structure your plan.
Financial markets will remain manic depressive. Euphoric one moment, downright despondent the very next. You must learn to ignore the many market machinations because they only matter if you make them matter.
Stocks will remain more volatile than bonds because stocks derive their value from long-range profits whereas bonds do from interest income. Profits are not predictable whereas interest income is.
But long-range profits from stocks will always exceed interest income from bonds. Build your plan with that in mind.
Stock-like growth with bond-like stability does not exist.
Mind the sentiment. Risk is highest when complacency is at its peak. The more comfortable you feel investing in something, the more you should check on the sentiment. If your comfort level and the prevailing sentiment align, double and triple check your investment thesis.
Keep enough cash on hand to make sure you never have to sell investments at inopportune times.
Try & avoid the worst hazards of behavioral investing. Follow the basic rule that I follow: Don’t peek. Don’t open your statements every quarter. Put in money regularly, and when you retire 40 or 50 years later, and open the statement for the first time, have a cardiologist on standby because you run the high risk of heart failure upon finding out how much money you have accumulated.
John Bogle
Invest in a diverse portfolio of stocks and bonds with the intent of remaining invested forever. Never be completely in or out of the markets. Never market time, ever.
Max out all your tax-deferred and tax-free accounts.
Do not take investing advice from billionaires. They can lose 90% of their money and still have 100 million dollars.
The secret to happiness in life is to have low expectations.
Charlie Munger
Keep your material aspirations a good deal below your income. That is the only way to accumulate lasting wealth as a normal earthling.
Debt is never good, even if you could afford it. It takes away options, your most valuable asset.
Save enough of your income to get you to retire at an age when your dad complained about his back hurting. You won’t want to work after that.
Pay no attention to The Joneses. They are crying inside.
Your ability to earn income is the biggest asset you own. Nurture it. It will pay dividends forever.
Work to design your work to never feel like you are working.
The goal of sound investment planning isn’t necessarily more money. The real goal is being able to live life on your own terms with the independence money buys.
And accept the fact that the future will play out differently than planned but there is no reason not to plan.
Cover image credit – Matheus Bertelli, Pexels