Three Commandments for Stock Investing (from Jason Zweig)

The Little Book of Safe Money

The latest book in the “Little Books Big Profits” series is Jason Zweig’s The Little Book of Safe Money: How to Conquer Killer Markets, Con Artists, and Yourself*. As you can probably tell from the title, this book is about keeping your money safe. Flipping through the book, I came across Jason’s Three Commandments for Investors:

1. Thou shalt take no risk that thou needst not take. Don’t overinvest in the company you work for. According to Zweig, you’re already taking a risk by working for the company in the first place (due to the chance of getting laid off or the company going under).

2. Thou shalt take no risk that is not most certain to reward thee for taking it. According to Zweig, investing in individual stocks or sectors of the market is taking too much risk. Instead, invest in the total market and forget about betting on one stock or sector to outperform another.

3. Thou shalt put no money at risk that thou canst not afford to lose. Depending on your circumstances, you may not even need to invest in stocks at all. I think this is a bit drastic but I suppose if you’re wealthy enough, you don’t have to own stocks.

One other thing Zweig mentions in a different chapter in the book, he makes a big deal about the fact that stocks were outperformed by bonds over the last 30-years (because 2008 was such a horrible year to be invested in the stock market). I don’t refute what Zweig is saying but I do wonder what the numbers look like on a dollar-cost-averaging basis, which is the way MOST people invest. More on this later.

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