Charles “Charley” Ellis is the author of several investment classics like Winning the Loser’s Game and Capital: The Story of Long-Term Investment Excellence. He wrote these 10 commandments for individual investors that are universally applicable so quoting them verbatim…
- Save. Invest your savings in your future happiness and security, education for your kids, and fiscal freedom to choose.
- Don’t speculate. If you must “play the market” to satisfy an emotional itch, recognize that you are gambling on your ability to beat the pros. So limit the amounts you play with to the same amounts you would gamble with the pros at Las Vegas. Keep accurate records of your results and you’ll soon persuade yourself to quit.
- Don’t do anything in investing primarily for tax reasons. Tax shelters are usually poor investments. Tax loss selling is primarily a way for brokers to increase their commissions.
- Be sure you have an astute estate plan that is current with your financial situation and the ever-changing tax laws. Making charitable gifts of low-cost stock that has appreciated in value can make sense if you were going to sell the stock anyway.
- Don’t think of your house as an investment. Think of it as a nice place to live with your family – period. A home is not a good financial investment and never was. But a home can certainly be a fine investment in your family’s happiness.
- Don’t do commodities. Dealing in commodities is really only price speculation. It’s not investing because there’s no economic productivity or value add.
- Don’t invest in new or “interesting” investments. They are all too often designed to be sold to investors, not to be owned by investors.
- Don’t invest in bonds just because you’ve heard that bonds are conservative or for safety of either income or capital. Bond prices can fluctuate nearly as much as stock prices do, and bonds are a poor defense against the major risk of long-term investing – inflation.
- Write out your long-term goals, your long-term investing program, and your estate plan – and stay with them. While annual reviews are recommended, review these plans at least once each decade.
- Distrust your feelings. When you feel euphoric, you’re probably in for a bruising. When you feel down, remember that it’s darkest just before dawn, so take no action. Activity in investing is almost always in surplus supply. Less is better.
Cover image credit – Miguel Padrinan, Pexels