I'M GOING TO LET YOU IN ON SOMETHING that millionaire stock investors like Charles Schwab know. The vast majority of them don't spend a whole lot of time researching complicated companies whose businesses they don't understand. They don't make money by using secret investing strategies to which only the rich are privy. And they certainly don't rely on complex formulas, detailed spreadsheets, and sophisticated algorithms to figure out what to buy or sell. Do you know what they do instead? They master the core principles of investing--the straightforward, irrefutable, can't-go-wrong-with-this kind of advice that has worked for eons.
Here are 10 lessons I've been fortunate enough to learn as a result of interviewing some of the top minds on Wall Street--as well as everyday individuals who have proven to be remarkably successful at increasing their fortunes with stocks and bonds.
LESSON 1: Long-Term Investing Trumps Speculating, Market Timing and Short-Term Trading
Why is it that so many investors jump from one stock to the next without regard for the negative ramifications of buying and selling investments too quickly? Trading too often causes a number of problems. It generates high commissions; which makes brokers richer but takes unnecessary money out of your pocket. When you sell investments held for less than a year, you have to pay higher short-term capital gains taxes, which are imposed at ordinary income tax rates as high as 35%.
Trading too frequently also causes your investments to underperform over time. Despite all these drawbacks, countless investors persist in trying to time the market, jumping in and out of the market as if investing were akin to watching a spate of TV shows on a Saturday night. Such rapid-fire change may give you entertainment satisfaction, but it can be disastrous for your investing portfolio.
LESSON 2: …
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