When it comes to investing, most of the really important stuff is actually really simple. It only sounds complicated because your financial planner wants to confuse you even further so he can charge you even more money.
In a recent blogpost, I mentioned that the two most important things you need to know about investing are:
- Invest in assets
- Diversify across them
But if you’re looking to expand your repertoire of important-yet-pithy nuggets of financial wisdom to remember throughout life, check out this awesome article from Morgan Housel of The Motley Fool. He’s summarized all the wisdom you need to know into 61 one-sentence financial rules. Here are some of my favorites:
(These nuggets of wisdom all totally in line with my investment philosophy of index investing, so if you’d like some practical advice on how to implement them in Singapore, check out my recently-launched Automatic Investing guide)
1. Dollar-cost average for your entire life and you’ll beat almost everyone who doesn’t.
10. You’re only diversified when some of your investments perform worse than others.
13. When in doubt, choose the investment with the lowest fee.
15. The more you learn about the economy, the more you realize you have no idea what’s going on.
23. Holding 60% of your assets in stocks and 40% in bonds isn’t perfect for everyone; but I can think of a thousand worse strategies.
28. Read last year’s market predictions and you’ll never again take this year’s predictions seriously.
29. Warren Buffett’s folksy talk misleads people into thinking that what he’s accomplished is easy. It’s not.
31. Two things you can do to make yourself a better investor are increase the amount of time you’re investing for and the humility you put into your ideas.
56. Most people’s biggest expense is interest, which comes from living beyond your means, and buying things they think will impress others, which comes from insecurity. Avoid these two and you’ll grow richer than most of your peers.
Image: kilgub
Rule 23 – Don’t buy any long-term bonds now. Sure lose money as interest rates go up and the price of your bond go down. Short-term bonds are ok if you hold to maturity and are in it just to collect the interest and the principal at the end of the maturity period.
I think Rule 23 was just meant to illustrate that the 60/40 portfolio may not be the most “optimal” at any given time, but it’s a proven, sensible strategy that works for the vast majority of investors. Let’s not worry about where interest rates are going and the thousand other economic factors out there. Instead, focus on the fundamentals: Invest in assets and diversify. Everything else is noise.