“It is near impossible to consistently outperform the market, which supports passive investing in lieu of active management strategies.” ~ Burton G. Malkiel
- Buy and hold investments for the long-term. Investment expenses and taxes will eat away at your returns. It’s impossible to perfectly time the market. You will make mistakes. Buying total market index fund will include buying nonprofitable companis in the mix. And, historical analysis shows:
- When markets are high is when most people put money into the market.
- When markets are low is when most people take money out of the market.
- Timing the market doesn’t work. Timing the market means selling assets at the top of the market and buying the asset at the bottom of the market. Successfully trying to time the stock market has never earned. Thus, you should not try to time the market.
- Dollar cost averaging. DCA means putting money into the market regularly overtime.
- Broad Diversification. You do not want all your personal capital and savings invested in a single stock or a single asset class, such as stocks only. You should diversify your investment across different asset classes (stocks and bonds), industries and countries. You want to own both domestic and foreign stocks, bonds, real estate and some cash.
- Cost matters. The two variable costs you can control are investment costs and taxes. Jack Bogle said, “you get what you don’t pay for.” Since, the lower the expense ratio the investor pays the purveyor of investment services, the more capital that is left over for the investor. Look carefully at the expense ratio.
- Index funds. Buy a total market index fund with zero or low expenses. Two-thirds of active investment managers are beaten by stock index funds annually. Ninety percent of active investment managers are beaten by stock index funds over a ten year period.
- Buy bond substitutes instead of total bond index fund such as preferred stocks or high yielding dividend paying established companies.
- Rebalance annually or at least bi-annually. This requires you to sale highly appreciated assets to buy assets that have not appreciated greatly or are on sale.
These are just a few timeless investing lessons that invest can follow to build wealth
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