12 Timeless Investing Principles
By: Cameron Diehl, CFP®
Friends – Jack Brennen was the second CEO in the history of Vanguard, succeeding the late John Bogle. I’ve always admired Mr. Bogle and Vanguard, who were part of my early introduction to investing and, I believe, have done more good in educating and bringing investing to the masses than just about anyone in history.
Recently, Mr. Brennan has been making the rounds promoting his new book, More Straight Talk on Investing, and while hearing him on podcasts and reading articles where he was quoted, I was continuously struck by how simply and succinctly he was able to communicate topics that are incredibly important for all investors.
I particularly enjoyed a “CliffsNotes” version of his 12 principles that he recently shared on a favorite blog of mine. I’ve summarized them below or you can read the full article here. I hope you enjoy.
- Develop a financial plan. Identify your goals and design an investment program that’ll enable you to reach them. Be conservative when projecting how fast your money will grow.
- Become a disciplined saver. Learn to live below your means. Make it a habit to put away money every month. If you aren’t naturally disposed toward saving money, find ways to trick yourself into doing so, such as automating your savings program.
- Start investing early and keep it up.Make time your ally. Begin setting aside money for your goals as soon as possible. Keep plugging away, contributing fixed amounts on a regular basis in both good markets and bad.
- Invest with balance and diversification.For balance, invest across the three major asset classes: stocks, bonds and cash investments. For diversification, make sure you aren’t overly exposed to any single company, industry or investment style. For an individual, mutual funds and exchange-traded funds are the simplest, most effective vehicles for accomplishing these two strategies.
- Control costs. Avoid funds with high annual expenses. The average mutual fund expense ratio was 0.63% in 2019, but there are funds that charge much, much less. While you watch your costs, don’t forget to minimize the bite from taxes.
- Manage risk.Create a portfolio that’ll enable you to sleep at night. If you design an investment mix that fits with your objectives, time horizon, risk tolerance and financial situation, you should be able to endure volatile times in the markets without feeling that you need to make drastic changes to your portfolio.
- Be a buy-and-hold investor.Those who frequently trade stocks, bonds and funds rarely succeed over the long term. A surer path to success is to settle on a trusted financial firm or firms, set up a sensible portfolio and stick with it.
- Avoid fads and “can’t-miss” opportunities. You’re sure to encounter people promoting alluring new investment opportunities in individual securities or narrow market sectors. Don’t be tempted to abandon your diversified strategy—or you could quickly undo all the good that you’ve accomplished.
- Tune out distractions. Resist the barrage of news and information about the market’s daily movements. Much of this information is irrelevant to you as a buy-and-hold investor. The danger: It may tempt you to make investment moves that aren’t in your best long-term interest.
- Maintain perspective.There will be good times and challenging times during your investment career. When times are good, be grateful, not greedy. When times are bad, be patient. Focusing on your long-term goals is a winning strategy for all seasons.
- Give your portfolio an occasional tune-up. No investor should put his or her investment mix on autopilot. Periodic rebalancing will keep your portfolio aligned with its target asset allocation, while life changes may necessitate tweaking those targets.
- Define “enough.” Know when you have enough money to meet your goals. You’ll be content and, more important, far less likely to reach for more and take unnecessary risks.
If you have any questions about these principles or how they apply to your personal planning and investing, please don’t hesitate to reach out. I’m always happy to help.
Disclosures: Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Asset allocation and diversification do not ensure a profit or protect against a loss. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability.
