1. Be financially literate. Test yourself at https://www.usfinancialcapability.org/quiz.php and http://www.investorhome.com/tests.htm
2. Understand the differences between investing, trading, speculating, and gambling (see chapters 5 - 10). Focus on the long term, not the short term.
3. Decide if you need an advisor, or second opinion. If so, find one you can trust that has the right background to help you, without charging an excessive amount. Donít allow anyone to scam you or take advantage of you. (see chapter 30)
4. Know your financials and live within your means. (see chapter 29)a. Know your assets and liabilities, current cash flow, and estimate your future flows.
b. Know your tax bracket.
c. Have emergency plans.
5. If you donít have enough yet, appreciate what you do have and develop a plan to get where you want to go financially. If you have enough, donít do anything to risk your financial future or your health (examples of lost wealth). Try to keep greed, fear, and past experiences from making you do things that will hurt you in the long-term.
6. Know your risk tolerance and biases.a. Do you have prior experiences that could affect your ability to invest appropriately?
b. Do you tend to make quick decisions based on gut instinct?
c. Are you excessively risk averse? Do you tend to take unnecessary risks?
7. Determine and maintain an appropriate asset allocation for your risk tolerance, goals, and constraints.
8. Default to broadly diversified funds. Active management, or factor investing need to have a high enough probability of succeeding after costs and taxes to be worthwhile.
9. Minimize your investment costs. Default to cheaper options when possible (see chapters 7 - 10).
10. Project returns based on historical returns for asset classes, but adjust based on current interest rates, and subtract costs. Donít assume recent patterns will continue, especially if they are inconsistent with the long-term experience. Be skeptical of the herd and fads.
11. Stress test your portfolio based on good and bad scenarios. Use crisis and downturns as opportunities to rebalance and acquire bargains. Buy low and sell high, not vice versa.
12. Schedule reviews periodically, and rebalance as appropriate based on reasonable asset allocation ranges. Revisit risk tolerance questions at least once a year.
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