Jason Zweig is a leading financial journalist and author. You’ll find his stuff in the Wall Street Journal several days a week. Buried within the appendix of his book, Your Money & Your Brain, is this great list of common sense rules that are commonly ignored.
Jason Zweig’s Rules for Investing
1. Take the Global View: Use a spreadsheet to track your total net worth — not day-to-day price fluctuations.
2. Hope for the best, but expect the worst: Brace for disaster via diversification and learning market history. Expect good investments to do poorly from time to time. Don’t allow temporary under-performance or disaster to cause you to panic.
3. Investigate, then invest: Study companies’ financial statement, mutual funds’ prospectus, and advisors’ background. Do your homework!
4. Never say always: Never put more than 10% of your net worth into any one investment.
5. Know what you don’t know: Don’t believe you know everything. Look across different time periods; ask what might make an investment go down.
6. The past is not prologue: Investors buy low sell high! They don’t buy something merely because it is trending higher.
7. Weigh what they say: Ask any forecaster for their complete track record of predictions. Before deploying a strategy, gather objective evidence of its performance.
8. If it sounds too good to be true, it probably is: High Return + Low Risk + Short Time = Fraud.
9. Costs are killers: Trading costs can equal 1%; Mutual fund fees are another 1-2%; If middlemen take 3-5% of your cash, its a huge drag on returns.
10. Eggs go splat: Never put all your eggs in one basket; diversify across U.S., Foreign stocks, bonds and cash. Never fill your 401(k) with employee company stock.