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One-sentence financial rules
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Contributed by Dan Thompson
One-sentence financial rules
March 29, 2014
Article contributed by Rita
There are 56,956 personal finance books on Amazon.com. In aggregate, they
more than 3 billion words. This seems absurd, because 99% of personal
be summarized in nine words: Work a lot, spend a little, invest the
Master that, and the other 2.999 billion words are filler. The most
finance topics don’t require details. Most can be, and should be, summarized
sentence or two. Here are some I’ve learned.
1. Dollar-cost average for your entire life and you’ll beat almost everyone
2. Only invest in products and companies you can explain to a six-year old.
3. Every five to seven years, people forget that recessions occur every five
to seven years.
4. You’re twice as biased as you think you are (four times if you disagree
with that statement).
5. Read more books and fewer articles.
6. Read more history and fewer forecasts.
7. It’s strange that you go to the doctor once a year, but check your
investments once a day.
8. Be careful when reading about how stupid investors can be and not realize
you’re reading about yourself.
9. Your circle of competence is probably 90% smaller than you think it is.
10. You’re only diversified when some of your investments perform worse than
11. Big risks will always be disregarded; small risks always blown out of
12. Check your brokerage account as infrequently as it takes to prevent rash
13. When in doubt, choose the investment with the lowest fee.
14. Emotional intelligence is more important than book intelligence.
15. The more you learn about the economy, the more you realize you have no
idea what’s going on.
16. Start saving for college before your kid is born, and start saving for
your retirement before you graduate college. You’ll feel silly when you
start and like a genius when you finish.
17. The most powerful way to grow your money is learning to live with less,
since you have complete control over it.
18. Singer Rihanna nearly went broke and fired her financial advisor, who
described her situation well: “Was it really necessary to tell her that if
you spend money on things, you will end up with the things and not the
19. You have no obligation to have an opinion about anything.
20. You have a strict obligation to not have an opinion about things you
21. No one attending private school should be on student loans. Most should
utilize community and state schools, which provide just as good an education
for a fraction of the price.
22. You shouldn’t feel strongly about any investment you haven’t spent at
least a week thinking about.
23. Holding 60% of your assets in stocks and 40% in bonds isn’t perfect for
everyone; but I can think of a thousand worse strategies.
24. Respect the role luck has played on some of your role models.
25. Don’t take out $100,000 in student loans for anything other than medical
school (if that).
26. Change your mind as often as the facts change.
27. Ignore people who refuse to change theirs when the facts change.
28. Read last year’s market predictions and you’ll never again take this
year’s predictions seriously.
29. Warren Buffett’s folksy talk misleads people into thinking that what
he’s accomplished is easy. It’s not.
30. Sleep on every investment decision for a week, then run it by a trusted
friend before acting.
31. Two things you can do to make yourself a better investor are increase
the amount of time you’re investing for and the humility you put into your
32. Just as you should dress appropriately for your age, you should spend
appropriately for your income, and not a penny more.
33. Warren Buffett has the best explanation of dumb risk-taking: “To make
money they didn’t have and didn’t need, they risked what they did have and
did need. And that’s foolish. It is just plain foolish.
34. You can probably afford not to be a great investor — you probably can’t
afford to be a bad one.
35. You’re twice as gullible as you think you are.
36. Learn more from your bad investments than your good ones.
37. Judge investors by the quality of their arguments, not the performance
of their last trade.
38. You can realistically afford probably half the home the mortgage broker
approves you for.
39. Teach your kids about money before they’re old enough to earn their own.
40. Admit when you are wrong.
41. Imagine how much stuff you’d have to make up if you were forced to talk
24/7. Remember this when watching financial news on TV.
42. There is, and always will be, more money to be made providing investment
advice than receiving it.
43. Assume the worst, hope for the best, accept reality.
44. Save for your own retirement; assume Social Security and private
pensions won’t be around (even though they probably will).
45. Annuities: A product mixing the complexity of high finance with the
sales tactics of used-car salesman has an entirely predictable outcome.
46. The correlation between confidence and future regret is incredibly high.
47. During the last 100 years, there have been more 10% market pullbacks
than Christmases. Everyone knows Christmas will come; think of volatility
the same way.
48. Don’t attempt to keep up with the Joneses without realizing the Joneses
aren’t any happier than you are.
49. Predictions, opinions, and forecasts should be discounted by the number
of times the person making them is on TV each week.
50. Not taking advantage of an employer match on your 401(k) is no different
than declining a raise.
51. Don’t let Washington sway your investment decisions. Congress has been a
dysfunctional swamp of disappointment since 1789, and stocks have done well
52. To quote Larry Summers: “A good rule of thumb for many things in life
holds that things take longer to happen than you think they will, and then
happen faster than you thought they could.
53. Another Larry Summers gem: “THERE ARE IDIOTS. Look around.
54. “Invest in what you know” is dangerously simplified.
55. Quit day trading, and donate your money to charity instead. Same
financial result for you, and a better outcome for society.
56. Most people’s biggest expense is interest, which comes from living
beyond your means, and buying things they think will impress others, which
comes from insecurity. Avoid these two and you’ll grow richer than most of
57. Reaching for yield to increase your income is often like sticking your
hands in a fire to warm them up — good in theory, disastrous in practice.
58. Your devotion to a political party or economic philosophy is directly
proportional to your tendency to think irrationally about how politics
affects your investments.
59. Most people need a financial advisor, but everyone needs a financial
counselor, or someone to talk them off the ledge before making a dumb
60. There’s a strong negative correlation between flaunting money and being
61. Investors were probably better informed 20 years ago when there was 90%
less financial news.