Choosing Stocks, Bonds, Mutual Funds, and ETFs

foundational investing maxims

  1. No one can accurately predict the future returns of stocks and bonds.

  2. Broad diversification increases the probability that your money will grow and last, but it doesn’t mean you won’t have significant losses in a bear market.

  3. Build an asset allocation based on long-term data, not the last five years.

  4. Diversify your equity by geography, market cap, and style (hold both growth and value stocks).

  5. Use only high quality bonds to reduce your overall portfolio volatility. High-yield bonds are a fine investment, but they share more in common with stocks than bonds.

  6. Investment costs matter.

  7. While we cannot predict bear markets, we can make use of them by increasing the allocation to stocks when they are significantly discounted.

  8. To succeed at investing takes a lot of patience.

  9. Investments that promise high returns with little or no risk are very, very unlikely to deliver.

  10. The more complicated the investment approach, the more likely it is to fail. Over-optimized systems simply cannot deliver in the future what the backtested results of the past show.