do’s and don’ts of investing

Do save as much as you can consistently from an early age. Compounding works best when you start early.

Do have an emergency cash reserve to cover 6–9 months of expenses before you begin investing. It will help you not be a forced seller of your long-term investments when circumstances change unexpectedly.

As Benjamin Graham famously said, “In the short-term the market is a voting machine, but in the long-term it is a weighing machine.” What he meant is that securities can trade at any price in the short-term based on people’s opinion, but in the long-term the markets are pretty good at properly valuing assets and cash flows.

Do match the time horizon of your investments with when you will need the money. Investments in stocks should ideally be made with a time horizon of 5+ years, with a minimum of 3. If you mis-match the duration of your investments vs. when you will need the money, you run the risk of being a forced seller at a temporary market low.

Don’t focus on the short-term, allow yourself to be unduly influenced by the financial news media, or let news about the market or the economy affect your long-term investing strategy.

Don’t pay high fees for investment products unless you know why the product is worth it. Many are not.

Don’t invest in anything that you don’t understand yourself.