Four timeless principles to help you reach your investment objectives (from Vanguard)

[Midpack]

https://personal.vanguard.com/us/insights/investingtruths

They are:
1) Goals - Create clear, appropriate investment goals.
2) Balance - Develop a suitable asset allocation using broadly diversified funds.
3) Cost - Minimize cost.
4) Discipline - Maintain perspectiveand long-term discipline.

Nothing new to most here, but a good summary, and the PDF version is a pretty complete read. I would recommend it to newbies and novices, though it doesn't hurt for any of us to review and reinforce.

It's interesting to me how 1 thru 3 dominate discussion here and elsewhere, when 4 is where most people go off the tracks. I can't the last meaningful thread on how to keep your head when the market goes into spasms, as it always will. Too many people alternate between panic and greed or just decide they can outsmart the pros...1 thru 3 probably won't help if you don't have the discipline to go with the program. YMMV

Because investing evokes emotion, even sophisticated investors should arm themselves with a long-term perspective and a disciplined approach. Abandoning a planned investment strategy can be costly, and research has shown that some of the most significant derailers are behavioral: the failure to rebalance, the allure of market-timing, and the temptation to chase performance.

Far more dependable than the markets is a program of steady saving. Making regular contributions to a portfolio, and increasing them over time, can have a surprisingly powerful impact on long-term results.

 

[Midpack]

Not new, but nice AA graph from the PDF...

 

[SumDay]

Thanks for sharing. I'm going to now share with my young adult kiddos.

 

[ER Eddie]

Yeah, thanks. That's an interesting AA graph.

 

[UserRequested]

A timely reminder - thank you

 

[ER Eddie]

It's interesting to me how 1 thru 3 dominate discussion here and elsewhere, when 4 is where most people go off the tracks. I can't the last meaningful thread on how to keep your head when the market goes into spasms, as it always will.

Threads like this help. Thanks, you're a smart guy, Midpack.

 

[jollystomper]

Thanks for the article!

One of things I have tried is showing my kids and other young folks, when the discussion has come up a trend graph (with numbers removed) of my 401K value since I opened it almost 30 years ago. Panics such as the 1987 crash, 1991 recession, 2000 bubble burst, and 2008-2009 crisis suddenly look like little bumps in the road compared to the overall growth due to steady investment discipline. I also used to show my mistake of not saving/investing at a higher rate when young, which would have made the curve look even better. It serves as a good reminder to me of the value of discipline.

 

[Amethyst]

Always understood 1, 3, and 4 intuitively, but had little or no clue about 2 until 6-12 months into being an ER forum member. Our "balance" is off, and we can't figure out how to correct it without big nuisance and costs.

At least I did get up the courage to dump loser stocks and harvest the losses, which helped some. But what to do with the big tax-deferred annuity, to which we contributed for 20 years, and which no longer pays competitive rates?

Amethyst

 

[pb4uski]

Always understood 1, 3, and 4 intuitively, but had little or no clue about 2 until 6-12 months into being an ER forum member. Our "balance" is off, and we can't figure out how to correct it without big nuisance and costs.

At least I did get up the courage to dump loser stocks and harvest the losses, which helped some. But what to do with the big tax-deferred annuity, to which we contributed for 20 years, and which no longer pays competitive rates?

Amethyst

I'm just curious as to the nuisance and costs of rebalancing. Mine are minimal unless I start playing around with my taxable accounts and even then are relatively benign given 0% federal capital gains rate (but there is a state tax bite).

On the annuity you can switch to a company with more competitive rates (called a 1035 exchange IIRC) but it would frequently start a new surrender charge clock - or perhaps do a 1035 exchange to a Vanguard or other low cost annuity provider. You could also annuitize it but it might be better to wait until you are in a lower tax bracket.

 

[Amethyst]

I'm talking about taxable accounts.

As for annuities, Vanguard doesn't offer any better rates. The rates just stink, period. Back when I started contributing, it was 8% locked in for 5 years!

I am supposed to be able to get all my money back at age 59 1/2, but then I'd owe tax on the earnings, and earnings are disbursed before principal.

Amethyst

I'm just curious as to the nuisance and costs of rebalancing. Mine are minimal unless I start playing around with my taxable accounts

On the annuity you can switch to a company with more competitive rates (called a 1035 exchange IIRC) but it would frequently start a new surrender charge clock - or perhaps do a 1035 exchange to a Vanguard or other low cost annuity provider. You could also annuitize it but it might be better to wait until you are in a lower tax bracket.