Timeless Investment Wisdom

From the latest Adam Smith Advisors wealth management newsletter.  Great advice...

These timeless bits of investment wisdom are as true today as they were 100 or 1,000 years ago, and we think they will still be true 100 years from now. We believe that people who follow these simple common sense ideas will be far ahead of those who do not. Most people who get into trouble financially have broken one or more of these rules. It is amazing how often smart people continue to make the same financial mistakes.

  1. Don’t buy anything you don’t understand. Keep it simple. Be wary of expensive, illiquid, non-transparent, and complicated investments. Complex investments are almost certainly designed in favor of the seller, not the investor.
  2. If it sounds too good to be true, it probably isn’t true.
  3. Minimize your investment costs and taxes.
  4. Invest for the long-term, and keep your portfolio turnover low. Those who get greedy and try to “get rich quick” usually “get poor quick.” Investing isn’t supposed to be exciting.
  5. Pay as much attention to risk as you do to potential return.  Be sure you can handle the risk of your portfolio in a downturn.
  6. Save more, spend less. Save at least 10%-15% of your income each year. Live below your means. Build a financial safety cushion.
  7. Own a diversified portfolio with many different asset classes and investments.
  8. Don’t let your emotions affect your portfolio. With investing, your worst enemy is likely to be you and your emotions. Studies have shown that the average investor earns about half the returns of the overall market over time due to poorly timed trading. Have an investment strategy and plan and stick to it.
  9. Don’t try to “time the market.” It’s “time in the market” that counts.
  10. Don’t invest money you will need in 3-5 years or less in volatile investments like stocks.
  11. Rebalance your portfolio by buying low and selling high. This is easy to say, but very difficult for most people to do in real life. Most investors actually do the opposite.
  12. Avoid the most popular investments, as they are likely fully priced. Past performance is not a guarantee of future investment returns. Don’t simply buy the investments that have done the best recently. Invest where no one else is waiting in line to buy. 
  13. Avoid debt and leverage.
  14. Invest with people you know and trust. Look for independent, objective, experienced advice.
Source: Cherry Tree's Adam Smith Advisors division

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