|
|
Admit
you are powerless over the market and
your portfolio is unmanageable. Everyone knew
interest rates would rise and bonds
would go down in 2004 and 2005. Yet long-term
bond yields fell for nearly a year after interest
rates started rising. |
|
|
Think in decades, not quarters. In
the long run markets go up. But short-term they’re
fickle, volatile and irrational. Forget market
timing…you’ll lose. Dalbar did a study
following mutual fund investors for 19 years. Market
timers lost an average 3.29% while those who practiced
dollar-cost averaging made 6.8%. |
|
|
Turn
to a “higher power”,
the market itself. The best way to make sure your
investments go up over time is a well-diversified
asset allocation strategy. |
|
|
Save at least 10% or more! The
more you save the more you’ll have! |
|
|
Focus on your portfolio. Whether
you are a retiree, boomer, or college student,
most of your portfolio’s long-term performance
depends on your asset allocation. A diversified
portfolio of real estate, stocks and bonds (including
international stocks and bonds) has historically
provided higher returns with less risk. Too many
stocks does not necessarily equate to higher returns. |
| Be Patient! Low turnovers
lower your taxes and raise your returns. |
|
|
Do not take too much or expect
to take too much from your portfolio. We
encourage people to think of 5% as a prudent
withdrawal rate - much more and your odds of
running out of money increases too much. |
|
Step 8:
|
Keep it simple. Do
not always be out there looking for a “better,
faster way”. Buy quality and let your investments
compound over time. |
|
|
Stop playing with your portfolio. It’s
prudent to re-balance. But many make impulsively
large moves, chasing what's hot and dumping what’s
not. Buying low and selling high is the way to
go – not the other way around! |
|
Step 10:
|
Ignore the news. News
is generally negative and sensationalized. Don’t
let day-to-day events distract you from your long-term
goals. |
|
|
Don’t believe people
who “beat the market”. Braggers
who say they are way up when the market is way
down are at best deluding themselves and at worst
lying. Don’t let yourself go off the wagon.
Stay diversified! |
Step
12:
|
There’s life
beyond the market. Remember
you’re powerless over the market, but if
you save faithfully and practice dollar-cost averaging
you’ll have plenty of power over your life
and your portfolio. |
|
Source: reprised from Market Watch, by column contributor Paul B. Farrell
and revised by Kerrick W. Bubb |
