My 16 principles for long-term investing
Dozens of dollars
Note: this article contains referral links for services I like and use.
I’ve been retail investing non-stop for seven years, and like my yearly lessons, I find it helpful to write down what I’m learning with time.
Let’s get something out of the way, though: even though this looks like advice and quacks like advice, let’s agree that it’s not, for your sake. Investing is like going to Mars—we can prepare the safest rockets and triple-check our math, but ultimately, we’re still adrift in space along the way. So, I’m writing these things down as someone adrift who, I think, is maintaining course.
1. You don’t have to beat the market
Really. You don’t. We all like the idea of “beating the market” because of what it says about us—that we’re geniuses who see things others don’t, which leads us to make boats of money via clever stock picks. But frankly, you probably can’t beat the market.
Instead, buying index funds, which keep pace with the market, are a prudent choice. Where picking stocks can seem like betting on horses, buying index funds is more like buying a piece of the derby.
2. Embrace index funds
Why invest in index funds? Low fees, solid returns, amazing diversification. I love them.
Need a breakdown? Let’s look at the popular fund VTSAX—a “total stock market” index fund. This fund holds almost all American stocks available in the market, and its fees are remarkably low. If you buy shares of VTSAX, think of it as buying a stake in American business.
There’s also VTIAX, a “total international stock market” index fund, which is similar: you’re buying a stake in a large swath of international stocks.
If I have $100 to invest in stocks, I’m putting $65 into VTSAX and the rest in VTIAX. If someone were to ask me if I own any specific stock, the answer is, technically, yes!
These funds also pay quarterly dividends, making them a fantastic asset to buy and hold throughout life.
3. Learn how to not spend money
Building a $1,000 emergency fund is more important than having one thousand emergency dollars. The real lesson is: if you can stare at $1,000 without impulsively spending it, you can probably do the same with $10,000 or $100,000 or more.
4. Sell never
Selling investments is complicated. Knowing when to sell might be more critical than knowing what to buy. For long-term investors, buying is frequent, and selling is rare and has big risks and complicated tax implications.
Later, you’ll learn about tax-loss harvesting and rebalancing. Those are good reasons to sell. So is retirement. Or emergencies. But when starting to invest, don’t sell assets, even during market downturns.
5. Set up an investment funnel
Making that first investment is difficult because it’s unlikely you can do it right now. You might first need to set up that brokerage account, pay off that debt, get that next paycheck, wait for that bank transfer, or wait for the market to open.
So, the first step is to prepare your investment funnel: setting up the least amount of steps necessary to hit “Buy” while obscuring the steps to hit “Sell.” Open a free brokerage account, connect a bank account, rehearse the clicks, automate to the max, then lose your brokerage password.
6. Skip the market news
You don’t need to pay attention to market news. Stock movements offer daily entertainment, and every upswing or downturn spins nicely into a story.
Up 0.5%? Headline: Stocks Rise Steadily as Fed Announces blah blah.
Down 2%? Headline: Stocks Nosedive as Jobs Report Shows blah blah.
Following market headlines will complicate your investments and might even derail your returns if you act on them. Hard pass.
7. Discipline is the goal
I’d rather be the man who saves a million dollars in ten years than the man who makes a million dollars in ten minutes.
Why? There’s an implicit lesson in every single thing we do: “If I can do it once, I can do it again.” A person who makes a million dollars in ten minutes may incorrectly think they’re clever enough to do it again. But a person who saves a million dollars over ten years learns the discipline to do it again. I prefer the latter.
8. Cash is king?
A misused cliché. Unless you’re running a business and talking about cash flow, cash is the king of a deflating kingdom.
An emergency fund of 3–6 months is plenty. For every dollar saved after that, invest it.
9. Get risky with Alternative assets
The Alternatives asset class—real estate, crypto, art, etc.—is where it’s possible, beneficial, and fun to beat the market (but remember—you don’t have to). Most portfolio recommendations cap Alternatives at 10% of your total portfolio, so there’s room to take more risks for potentially higher returns.
Of that 10%, I hold 2% in cryptocurrency (a 66/33 mix of Bitcoin and Ether), and the other 8% in private REITs with Fundrise.
I aim to beat the market with Alternatives while matching the market with everything else.
10. Never invest in cryptocurrency…
If you’re asking me.
11. …But if you do, have fun and be careful
Investing in cryptocurrency can be a lot of fun if you do it responsibly. You’ll make money and lose money investing in crypto. Who knows!
The crypto space has its own world of asset allocations, funds, exchanges, and tax rules, as well as dangerous schemes to avoid. So, the more you know about boring USD finance, the more prepared you’ll be to invest in crypto.
12. Real estate is pretty much always a good investment
What to buy, though, is complicated. Not every rental property is a good investment and not everyone should buy a house right this second. But because so much of life happens indoors now, factoring real estate into your portfolio is generally a good idea.
13. Avoid flashy investment apps...
Apps like Robinhood are exciting and addicting, but for best results, find a brokerage that’s boring, hard to navigate, and not worth browsing.
I use Vanguard. Their website sucks. It’s slow and looks terrible on mobile browsers. Transferring money to and from Vanguard takes multiple, confusing clicks. This friction is perfect—the idea of selling our mutual fund shares and transferring cash to our bank account sounds like a chore. And if I do sell, I’ll have to navigate their Tax Documents section next tax season, and…ugh. See what I mean? Boring can be good.
14. …But budgeting and tracking apps are great
I’ve used Personal Capital for seven years to track my net worth and investments. I’ve used You Need a Budget for eight years and still track every penny. I can’t do without either of them and highly recommend them both.
15. Embrace HSAs, 529s, and IRAs
If you don’t know how they work, it’s worth taking ten minutes to read about each of them.
16. One portfolio
For best results, treat all of your investments—401Ks, index funds, meme stocks, crypto, and real estate—as part of a single portfolio. Learn what asset allocation means and what your ideal allocation should be. While everybody’s talking about going “to the moon,” those with significant wealth are chasing allocation and tax efficiency.
You can see a breakdown of your total portfolio using Personal Capital’s Investment Checkup tool.
That’s all for now. Happy investing.