Knight Kiplinger is the editor-in-chief and a columnist for Kiplinger’s Personal Finance, one of the “big three” money magazines. In the June issue, Kiplinger offered an investor’s manifesto, a list of twenty guiding principles for making smart investment decisions.
Kiplinger’s manifesto is a great list, effectively summarizing mainstream investment theory on a single page. I liked it so much that I obtained permission to reprint it in its entirety. Here are the twenty points in Knight Kiplinger’s investor’s manifesto:
- I am an investor. I do not trade my assets frequently. That’s speculation, not investing.
- I am also a saver, fueling my investments with continuous savings from current income.
- I know that every kind of asset entails risk — even cash, which can be eroded by inflation.
- I know that higher returns entail higher risk, in every kind of asset.
- I accept those risks, but I mitigate them by owning a diversity of assets.
- I regard my home as a place to live, not as an investment. It is not a substitute for retirement savings.
- I have an investment plan and a plan for asset allocation, in consultation with a financial adviser.
- I invest regular amounts every month, in both rising and falling markets. I know I cannot gauge market tops and bottoms. If I receive a windfall — a bonus, bequest or gift — I gradually feed it into my regular investment mix.
- I don’t pour more money into hot markets nor completely cash out of plunging markets.
- I spread my investments among several asset classes, in a mix fitting my age and risk tolerance.
- My share of bonds roughly equals my age. I will allocate to stocks a declining portion of my financial assets as I get older.
- I rebalance my portfolio every quarter. If the stock market plunges, pushing my stock allocation way below its target percentage, I sell bonds and use my cash to buy stocks.
- I force myself to sell high and buy low by periodic rebalancing — just what is temperamentally difficult for most investors to do.
- I know that stocks are risky in the short run, so I hold in equities no money for which I have a likely need in the next three years.
- But stocks are not too risky in the long run. They have outperformed all other commonly-traded assets over periods of 15 years and longer.
- Foreign stocks account for at least 15% of my stock allocation. I believe that developing economies will enjoy much higher growth than the U.S. in the decades ahead.
- I never borrow against my stocks. Margin calls could force me to sell good assets at a bad time.
- I stick with my game plan. I do not check the value of my investments every day or even every week.
- I try to keep my cool when other folks are losing theirs.
- I remind myself often: I am an investor.
Do you disagree with any of Kiplinger’s mantras? Are there others you’d add to the list? (For example, I might include: “I buy low-cost index funds. I know that over the long-term, indexing beats the returns offered by most other investment options.”) Do you hold a set of principles that guide your investment decisions?
In April, I shared a similar document from billionaire John Templeton, who described his 16 rules for investment success.
[Kiplinger's Personal Finance: An investor's manifesto, reprinted with permission]
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