Let’s get right to it…
Principle # 1 – The Goal of Long-Term Investing
The goal of long-term investing isn’t to provide you security today, but to earn you real, inflation adjusted, long-term returns for the future.
Principle # 2 – Compound Interest Is Your Best Friend or Worst Enemy
Ask anyone older what they wish they had done at your age, and the answer is usually, “I wish I began investing for retirement.” Why not let your investment portfolio experience the magic of compound interest itself, instead of imagining the possibilities.
Don’t forget that compound interest can also be your worst enemy. Investments are not the only thing that compounds, so does debt.
Principle # 3 – Investing Isn’t To Be Confused With Gambling
If you apply the principles of investing, risk tolerance, time horizon, and asset allocation, you can have a fairly close assumptions of your returns. There isn’t a lot of risk.
Strategies like trying to time the market, buying and selling individual stocks, selling options, are not investing, they are gambling.
Principle # 4 – Successful Investing is a Passive Activity
Investing is as fun as watching paint dry. The rewards tend to be a little better, although.
Making more trades or paying more attention to news, will not make you a better investor.
Principle # 5 – You Should Never Begin Investing Without Goals
If you don’t know why you’re investing, you should not be investing.
Principle # 6 – Risk Tolerance Matters
I have seen it over and over again, overstating your risk tolerance will cost you more in the long run.
It’s easy to say, you enjoy risk because it’s likely to give you a higher return. What’s hard is staying the course when the market drops 50%.
Principle # 7 – Control Only What You Can Control, Don’t Worry About The Rest
You can’t control what the market does from day-to-day. Don’t worry about what you can’t control. It will only cause you stress and money.
Take time understanding the things you can control such as expenses, taxes, risk tolerance, and asset allocation. This is what you need to take the time to understand.
Principle # 9 – Taxes Matter
When you’re saving for retirement, accounts such as a Roth IRA or 401Ks will always out gain the same investment in non-tax advantaged account. There is no reason, why you should be investing in anything besides these accounts for retirement.
Principle # 10 – Costs Matter
Invest $5,000 per year for from the time you’re 25 to the time you’re 65 into a Roth IRA, earn 10% a year, and you will have accumulated $2,434,259.
If you earn just 9%, the difference between paying a 1% fee, you will have earned $1,841,459.
Principle # 11 – Most Investment Magazines, Newsletters, and Television Shows Are Meant to Sell Advertising, Not Provide Quality Investment Advice
Why else would BusinessWeek in April, 2008 advise you to buy Lehman Brothers stock? Yes, that’s the company that went bankrupt a few months later.
Principle # 12 – Listen to 3 of The Greatest Investor’s of All Time
- Warren Buffet – “The best way to own common stocks is through index funds.”
- Peter Lynch – “Most individual investors would be better of in an index mutual fund.”
- David Swenson - “You belong at the other end, with a portfolio exclusively in index funds with low fees. If you’re not going to put together a team [of 20-25 investment professionals] that can make high-quality decisions, your best alternative is passive investing”