Failing to plug financial leaks is much costlier than most of us imagine. This should take priority over trying to make a speculative killing. Here are some ground rules:
Pick low-fee mutual funds and ETFs only. Anything over 1.00% is definitely too high. Aim for under 0.50% for all but the rarest asset classes.
Lean towards mutual funds if you invest modest amounts of capital on a monthly basis. Lean towards ETFs if you infrequently invest large lump sums.
Don’t pick (individual firm’s) stocks. I know I will lose 90% of you with this buzzkill. If you’re worried following this rule will make you a less interesting conversationalist, compensate by buying rounds with your excess long-term wealth.
Ignore any funds that charge loads (front- or back-end) or 12-b1 fees.
Reinvest dividends automatically using DRIP (Dividend ReInvestment Program) to compound and to avoid cash drag. This feature is available on virtually all brokerage accounts.
Absolutely no leveraged or inverse ETFs. Ever. No exceptions. Another rule without exceptions: Always use a limit order.
No investing in VIX or commodity futures. This is due to contango, a monthly financial drain. If you have a strong opinion, go with options instead. Gold, silver, platinum, and palladium ETFs are fine since you actually have a claim on bullion stored in a vault somewhere (as opposed to an investment in futures).
Focus on the long-term. Risk is the reason you earn a higher return than your bank CD or savings account. Embrace the volatility. Be thankful for it. Dollar-cost-average (DCA) into it.
That said, know your psychology and risk-tolerance. Sleep is too precious.
Remember that a particular country or asset class can be doing amazing while being overvalued in the markets, whereas another may be suffering and yet be a great value buy. Don’t follow the herd and get caught up in waves of panic and euphoria. Emotional stability is very lucrative.
More to follow…