Five Principles Every Investor Should Know

In 2010, the late Gordon Murray, a retired investment banker, was facing terminal illness. He made it his mission to publish a book in his remaining days to help investors improve their investment experience. His book, entitled The Investment Answer, evaluates five principles that all investors should be familiar with. These five principles are worthy of our review.

1.  Carefully select your money manager. Work with a fee-only advisor who has a fiduciary obligation to place your interests first. Select an advisor who only gets paid by you and who does not earn any commissions or compensation from a third party that might influence their recommendations.

2.  Diversify among stocks and bonds, large and small, value and growth. No investment stays in favor all the time. Make sure you have many different types of investments in your portfolio. This will help you reduce the volatility of your overall portfolio.

3.  Further divide your investments among foreign and domestic investments. The United States is not the only place on earth where the excellent investment opportunities are found.

4.  Decide if you want to own passive or actively managed funds. Some advisors will tell you what you want to hear: They will research the markets to select the best investments and determine when to own them. Other advisors will tell you that the future of the markets is essentially unknowable. The ability for anyone to consistently determine which companies will be the best and when to buy or sell is a great idea if only someone could do it. Once you view the research and come to a conclusion that this well-intended approach doesn’t work very well, you would be well advised to select an advisor who uses low-cost index funds and asset-class funds to represent the markets.

5.  Rebalance your portfolio. Somewhat counter-intuitively, the author believes in selling the asset classes that are making money and buying more of what is losing money. “When one asset class gets overweighed in your portfolio, you want to trim that back.”

For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s newest white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.