As the quote from French Philosopher, Voltaire, famously goes “Common sense is not so common.” This is especially true when it comes to finance and investing. So, here a few common-sense thoughts:
What Works… What Doesn’t
Works: Save every month- between 10% and 20% of gross income each month.
Works: Diversify. Your investments should be in a variety of index funds and ETF’s that track many different categories of companies.
Works: Dollar-cost averaging. Every month buy a similar dollar amount of the funds you own. Don’t look at where the market is on the day you buy. Set alerts to remind yourself how much to buy, which funds to buy, and the date. Over time this method will result in the average cost per share to be less than the average price per share.
Doesn’t work: Don’t watch financial TV- they are interested ratings, not your financial well-being.
Doesn’t work: Don’t worry about near term markets-get a hobby-hiking, chess, kayaking, tennis, adventures. Get your mind off the short term. Market gyrations don’t have much effect on the long term success of your investment portfolio.
Works: Do have correct asset allocation- own a healthy mix of large and small companies, domestic and foreign.
Doesn’t Work: Don’t look at your portfolio more than 1x/month. See above-get a hobby.
Doesn’t work: Don’t act on stock tips.
Doesn’t work: Don’t be influenced by friends who say they hit it big. Like gamblers who brag about success, usually, they don’t tell you about the losses. Remember this is a marathon, not a sprint.
Works: Pay attention to fees- buy index funds that have low expense ratios, are no-load and commission-free, that track their respective index with high fidelity, and have low turnover to minimize capital gains.