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C. Common Sense Rules
Long Term Investing
- Never "average down" in a position. The only time you add to a position is when the stock is going up, ala making money for you.
- Have a basket of stocks and bonds, not just a few. Not even the best stock picker in the world picks winners every time. Spread the risk around. Have at least two stocks from each sector you are invested in and invest in at least four sectors. This way you will reduce the chance of one bad stock or bond destroying your account in the event you are wrong.
- If you would rather own mutual funds, spread the risk around as well. Own at least two stock funds with different investment styles and at least one investment grade bond fund. See our list of recommended mutual funds. Ask us to help you with the proper allocation.
- Have a game plan, follow your game plan, and be patient.
- NEVER hold onto losing position. Don't hang in there just because you believe a stock "has to come back." Nothing "has to come back." Remember Enron or Global Crossing?
- Always keep at least 10% of your portfolio in a money market fund. Emergencies come up. Be prepared.
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Woodstock U
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