Sunday, February 08, 2015

Rules of Investing

As described in the Wall Street Journal.

Fourteen Simple Rules

Ignore economic and financial forecasts. Their purpose is to keep forecasters employed.

Keep it simple. Complicated financial strategies and investments are mostly designed to enrich managers and salesmen.

Buy individual stocks only as a gamble.

Put most of your long-term portfolio into equities. While equities are volatile, they generally produce the best long-term returns.

Invest globally, not just in the U.S.

Buy Treasurys, too.

Never buy a lottery ticket.

And the other seven ...

Know thyself. Don’t pursue complex financial or tax strategies if you’re not a details person. Cut up your credit cards if you’re a shopaholic. Invest more conservatively if you’re apt to panic in a crisis.

Buy high-deductible home and car insurance. It’ll save you money.

Protect yourself from disaster. Have disability insurance, either through work or directly. Buy term life insurance to cover dependents. ...

Use those free shelters. Contribute as much as possible to your company’s 401(k) plan.

Save early, save often.

Cut the waste. There’s fat in every middle-class budget.

Teach your children about money. Teach them early and often. No one else will. ...

There are some others, but these are the ones that most resonated with me.

Boiled down to the essence, investing is simple: Set up a diversified portfolio of index funds, put part of your weekly check into them, then do the same the next week ... and the next week. The hard part is executing the strategy. And sticking with it.

If you're not into investing, (like it makes your eyes glaze over) then you're a prime candidate for a low-cost fund of funds.

Like this one.

Or (for the fainter of heart) this one.

Or, if you don't have much tax-advantaged space, you can try this, this or this.

The name of the game is to salt money away each week in a minimal-cost, diversified portfolio. Do it regularly, dont'tamper with it for twenty-five or thirty years, then live off of the money stash in your autumnal years.

Like I said: it's simple to plan, but harder to actually do.


Celshader said...

Or, if you don't have much tax-advantaged space, you can try this, this or this.

Individuals putting away $20,000/year or less in tax-advantaged space might also consider U.S. Savings Bonds for the bond component. The interest grows tax-deferred for up to 30 years, and the earnings are exempt from state tax (though not federal tax).

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