Investment Focus: Follow 5 Simple Rules

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Vanguard Group Inc. founder John Bogle offers some simple rules for investment success.  We have condensed his list of 10 to the following five:

  • Remember reversion to the mean. If a company’s stock or the overall market has had unusually strong performance, it’s unlikely to continue at that pace.
  • Forget the needle and buy the haystack. Invest in a diversified portfolio and eliminate individual company and stock risk.  The odds of finding the next Apple are low.
  • Have realistic expectations. Investment returns – and not speculative, risky plays – are the bread and butter of smart investing.
  • Patience is your friend, impulse is your enemy.  Buying and selling increases your odds of making a mistake.  So buy a diversified portfolio and hold on to it to improve your odds of being rewarded.
  • Minimize the croupier’s take. Look for funds with low fees, such as index funds.  Funds with high fees can significantly reduce your investment returns.  This advice could sound like a plug for Vanguard, but it has solid support in the academic literature.