William J Bernstein's book The Four Pillars of Investing is a rational guide to lifetime financial success. His "Four Pillars" are:
- Investment Theory
- high returns can only come via high risks
- successful stock picking and market timing are impossible
- diversification across the stock market is the best way to maximize long-term returns
- Investment History
- over time, the stock market will experience irrational highs and lows
- don't pour money into stocks when markets are booming and prices are high
- increase purchases of widely diversified sets of stocks when market conditions seem bad and prices are low
- Investment Psychology
- however scary it may be, don't pull out of stocks when prices collapse
- keep enough money in US Treasury securities and other low-risk investments to feel confidence for the long term
- ignore data on short timescales (less than decades), and disbelieve apparent patterns in stock prices
- Investment Business
- ignore market advisors, broker recommendations, and financial "news"
- pay close attention to mutual fund fees, and minimize them
- "Stay the course"
Solid advice! And yes, the "Four Pillars" aren't independent of each other — but they do provide a framework for Bernstein's detailed explanations and analyses. Don't do anything crazy, don't trust people who are about to make money by telling you what to do, and don't underestimate risks. As Jonathan Clemens says in his Foreword, the future is uncertain and "... we get just one shot at making the financial journey from here to retirement — and we can't afford to fail."
(cf Money Wisdom (2001-05-20), Bubble Busters (2002-02-06), Harry Browne Rules of Financial Safety (2019-12-24), Shiller Price Earnings Ratio (2021-03-29), Bogleheads (2024-01-28), ...) - ^z - 2024-04-19