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20 Rules for Successful Investing Saving is a prerequisite to investing Unless you have wealthy, benevolent relatives, living within your means and saving money are prerequisites to investing and building wealth Know the three best wealth-building investments People of all economic means make their money grow in ownership assets — stocks, real estate, and small business — where they share in the success and profitability of the asset Be realistic about expected returns Over the long term, to 10 percent per year is about right for ownership investments (such as stocks and real estate) If you run a small business, you can earn higher returns and even become a multimillionaire, but years of hard work and insight are required Think long term Because ownership investments are riskier (more volatile), you must keep a long-term perspective when investing in them Don’t invest money in such investments unless you plan to hold them for a minimum of five years, preferably a decade or longer Match the time frame to the investment Selecting good investments for yourself involves matching the time frame you have to the riskiness of the investment For example, for money that you expect to use within the next year, focus on safe investments, such as money market funds Invest your longer-term money mostly in wealth-building investments Diversify Diversification is a powerful investment concept that helps you to reduce the risk of holding more aggressive investments Diversifying simply means that you should hold a variety of investments that don’t move in tandem in different market environments For example, if you invest in stocks, invest worldwide, not just in the US market You can further diversify by investing in real estate Look at the big picture first Understand your overall financial situation and how wise investments fit within it Before you invest, examine your debt obligations, tax situation, ability to fund retirement accounts, and insurance coverage Ignore the minutiae Don’t feel mystified by or feel the need to follow the short-term gyrations of the financial markets Ultimately, the prices of stocks, bonds, and other financial instruments are determined by supply and demand, which are influenced by thousands of external issues and millions of investors’ expectations and fears Allocate your assets How you divvy up or allocate your money among major investments greatly determines your returns The younger you are and the more money you earmark for the long term, the greater the percentage you should devote to ownership investments 10 Do your homework before you invest You work hard for your money, and buying and selling investments costs you money Investing isn’t a field where acting first and asking questions later works well Never buy an investment based on an advertisement or a salesperson’s solicitation of you 11 Keep an eye on taxes Take advantage of tax-deductible retirement accounts and understand the impact of your tax bracket when investing outside tax-sheltered retirement accounts 12 Consider the value of your time and your investing skills and desires Investing in stocks and other securities via the best mutual funds and exchangetraded funds is both time-efficient and profitable Real estate investing and running a small business are the most time-intensive investments 13 Where possible, minimize fees The more you pay in commissions and management fees on your investments, the greater the drag on your returns And don’t fall prey to the thinking that “you get what you pay for.” 14 Don’t expect to beat the market If you have the right skills and interest, your ability to better than the investing averages is greater with real estate and small business than with stock market investing The large number of experienced full-time stock market professionals makes it next to impossible for you to choose individual stocks that will consistently beat a relevant market average over an extended time period 15 Don’t bail when things look bleak The hardest time, psychologically, to hold on to your investments is when they’re down Even the best investments go through depressed periods, which is the worst possible time to sell Don’t sell when there’s a sale going on; if anything, consider buying more 16 Ignore soothsayers and prognosticators Predicting the future is nearly impossible Select and hold good investments for the long term Don’t try to time when to be in or out of a particular investment 17 Minimize your trading The more you trade, the more likely you are to make mistakes You also get hit with increased transaction costs and higher taxes (for non-retirement account investments) 18 Hire advisors carefully Before you hire investing help, first educate yourself so you can better evaluate the competence of those you may hire Beware of conflicts of interest when you consider advisors to hire 19 You are what you read and listen to Don’t pollute your mind with bad investing strategies and philosophies The quality of what you read and listen to is far more important than the quantity Find out how to evaluate the quality of what you read and hear 20 Your personal life and health are the highest-return, lowest-risk i­ nvestments They’re far more important than the size of your financial portfolio Copyright © 2017 Eric Tyson Praise for Eric Tyson’s Best-Selling For Dummies Titles “Eric Tyson For President!!! Thanks for such a wonderful guide With a clear, no-nonsense approach to . . . investing for the long haul, Tyson’s book says it all without being the least bit long-winded Pick up a copy today It’ll be your wisest investment ever!!!” —Jim Beggs, VA “Eric Tyson is doing something important — namely, helping people at all income levels to take control of their financial futures This book is a natural outgrowth of Tyson’s vision that he has nurtured for years Like Henry Ford, he wants to make something that was previously accessible only to the wealthy accessible to middle-income Americans.” —James C. Collins, coauthor of the national bestsellers Built to Last and Good to Great “The organization of this book is superb! I could go right to the topics of immediate interest and find clearly written and informative material.” —Lorraine Verboort, Beaverton, OR “Among my favorite financial guides are . . . Eric Tyson’s Personal Finance For Dummies.” — Jonathan Clements, The Wall Street Journal “In Investing For Dummies, Tyson handily dispatches both the basics . . . and the more complicated.” —Lisa M. Sodders, The Capital-Journal “Smart advice for dummies . . . skip the tomes . . . and buy Personal Finance For Dummies, which rewards your candor with advice and comfort.” —Temma Ehrenfeld, Newsweek “You don’t have to be a novice to like Mutual Funds For Dummies Despite the book’s chatty, informal style, author Eric Tyson clearly has a mastery of his subject He knows mutual funds, and he knows how to explain them in simple English.” —Steven T. Goldberg, Kiplinger’s Personal Finance magazine “Eric Tyson . . . seems the perfect writer for a . . . For Dummies book He doesn’t tell you what to or consider doing without explaining the why’s and how’s — and the booby traps to avoid — in plain English. .  It will lead you through the thickets of your own finances as painlessly as I can imagine.” —Clarence Peterson, Chicago Tribune “Personal Finance For Dummies is the perfect book for people who feel guilty about inadequately managing their money but are intimidated by all of the publications out there It’s a painless way to learn how to take control.” —Karen Tofte, producer, National Public Radio’s Sound Money More Best-Selling For Dummies Titles by Eric Tyson Personal Finance For Dummies® Discover the best ways to establish and achieve your financial goals, reduce your spending and taxes, and make wise personal finance decisions Wall Street Journal bestseller with more than 1.5 million copies sold in all editions and winner of the Benjamin Franklin Award for best business book Also check out Personal Finance in Your 20s For Dummies and Personal Finance For Seniors For Dummies Mutual Funds For Dummies® This best-selling guide is now updated to include current fund and portfolio recommendations Using the practical tips and techniques, you’ll design a mutual fund investment plan suited for your income, lifestyle, and risk preferences Home Buying Kit For Dummies® America’s #1 real estate book includes coverage of online resources in addition to sound financial advice from Eric Tyson and frontline real estate insights from industry veteran Ray Brown Also available from America’s best-selling real estate team of Tyson and Brown: House Selling For Dummies and Mortgages For Dummies Real Estate Investing For Dummies® Real estate is a proven wealth-building investment, but many people don’t know how to go about making and managing rental property investments Real estate and property management expert Robert Griswold and Eric Tyson cover the gamut of property investment options, strategies, and techniques Small Business For Dummies® Take control of your future and make the leap from employee to entrepreneur with this enterprising guide From drafting a business plan to managing costs, you’ll profit from expert advice and real-world examples that cover every aspect of building your own business Investing Investing 8th Edition by Eric Tyson, MBA Author of Personal Finance For Dummies and Mutual Funds For Dummies Investing For Dummies®, 8th Edition Published by: John Wiley & Sons, Inc 111 River Street Hoboken, NJ 07030-5774 www.wiley.com Copyright © 2017 by Eric Tyson Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the Publisher Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/ permissions Trademarks: Wiley, For Dummies, the Dummies Man logo, Dummies.com, Making Everything Easier, and related trade dress are trademarks or registered trademarks of John Wiley & Sons, Inc., and may not be used without written permission All other trademarks are the property of their respective owners John Wiley & Sons, Inc., is not associated with any product or vendor mentioned in this book LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: WHILE THE PUBLISHER AND AUTHOR HAVE USED THEIR BEST EFFORTS IN PREPARING THIS BOOK, THEY MAKE NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF THE CONTENTS OF THIS BOOK AND SPECIFICALLY DISCLAIM ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. NO WARRANTY MAY BE CREATED OR EXTENDED BY SALES REPRESENTATIVES OR WRITTEN SALES MATERIALS. THE ADVICE AND STRATEGIES CONTAINED HEREIN MAY NOT BE SUITABLE FOR YOUR SITUATION. YOU SHOULD CONSULT WITH A PROFESSIONAL WHERE APPROPRIATE. NEITHER THE PUBLISHER NOR THE AUTHOR SHALL BE LIABLE FOR DAMAGES ARISING HEREFROM For general information on our other products and services, please contact our Customer Care Department within the U.S at 877-762-2974, outside the U.S at 317-572-3993, or fax 317-572-4002 For technical support, please visit https://hub.wiley.com/community/support/dummies Wiley publishes in a variety of print and electronic formats and by print-on-demand Some material included with standard print versions of this book may not be included in e-books or in print-on-demand If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com For more information about Wiley products, visit www.wiley.com Library of Congress Control Number: 2016961496 ISBN 978-1-119-32069-2 (pbk); ISBN 978-1-119-32077-7 (ebk); ISBN 978-1-119-32070-8 (ebk) Manufactured in the United States of America 10 www.downloadslide.com US stock funds, 174, 175 Walton, Sam, 287 USAA, 189 Warning icon, USGS (US Geologic Survey), 216 wash sale rules, 394 Wealth Without Risk (Givens), 354 V vacancy rates (real estate), 231 value evaluating small business, 337–338 valuing property, 216, 233–238 value averaging, 62 Value Line Investment Survey accessing, 118 Analyst assessment, 114 Annual rates section, 117 Business section, 112 Capital structure section, 116 Current position section, 116 Historic financials section, 115 P/E ratio section, 116 Quarterly financials section, 117 report on Starbucks, 113 Safety rating, 114 Stock price performance graph, 114–115 Timeliness rating, 114 Value Line Investment Survey - Smart Investor software, 371 The Whiz Kid of Wall Street’s Investment Guide (Seto), 362 Williams, Richard E., 61 Wilshire 5000 index, 86 WisdomTree, 176 work space (small businesses) equipping, 315–316 finding and leasing, 313–314 workaholism, 280 work-from-home opportunities, 333 work/life balance, 320 WorldCom, 120 worldwide stock funds, 174 Wounded Warrior Project, 278 Wozniak, Steve, 287 Y Yellen, Janet, 79 Yellow Pages directory, 326 yelp.com, 374 yield bond funds, 179–181 value stocks, 174, 400 defined, 33 Van Andel, Jay, 334 individual bonds, 150 Vanguard, 166, 167, 181, 189, 194, 195, 377 money market funds, 138–139 venture capitalists (general partners), 40 yield curve (bonds), 144 Venture Economics, 40 Young, Owen D., 99 W Z Walt Disney Company, 75 zoning, 229, 240, 290 The Wall Street Journal, 85 zero coupon bonds, 147 Index 423 www.downloadslide.com www.downloadslide.com www.downloadslide.com www.downloadslide.com About the Author Eric Tyson is an internationally acclaimed and best-selling personal finance author, lecturer, and advisor Through his work, he is dedicated to teaching people to manage their money better and to successfully direct their own investments Eric is a former management consultant to businesses for which he helped improve operations and profitability Before, during, and after this time of ­working crazy hours and traveling too much, he had the good sense to focus on financial matters He has been involved in the investing markets in many capacities for more than three decades With the assistance of the late Dr Martin Zweig, a famous investment market analyst, Eric won his high school’s science fair for a project on what influences the stock market In addition to investing in securities over the decades, Eric has also successfully invested in real estate and started and managed his own business He has counseled thousands of clients on a variety of investment ­quandaries and questions He earned a bachelor’s degree in economics at Yale and an MBA at the Stanford Graduate School of Business Despite these impediments to lucid reasoning, he came to his senses and decided that life was too short to spend it working long hours and waiting in airports for the benefit of larger companies An accomplished freelance personal finance writer, Eric is the author of numerous best-selling books, including For Dummies books on personal finance, mutual funds, taxes (coauthor), and home buying (coauthor) He is also a syndicated ­columnist His work has been featured and quoted in hundreds of national and local publications, including Kiplinger’s Personal Finance Magazine, Los Angeles Times, Chicago Tribune, The Wall Street Journal, and Bottom Line/Personal and on NBC’s Today Show, ABC, CNBC, PBS’s Nightly Business Report, FOX, CNN, CBS national radio, Bloomberg Business Radio, National Public Radio, and Business Radio ­Network He’s also been a featured speaker at a White House conference on ­retirement planning To stay in tune with what real people care about and struggle with, Eric maintained a financial counseling practice for many years You can visit him on the web at www.erictyson.com www.downloadslide.com Dedication Actually, before I get to the thank-yous, please allow me a really major thank-you and dedication This book is hereby and irrevocably dedicated to my family and friends, as well as to my counseling clients and customers, who ultimately have taught me everything I know about how to explain financial terms and strategies so all of us may benefit www.downloadslide.com Author’s Acknowledgments First, I’d like to thank Vicki Adang Thanks also to Danielle Voirol for all of her fine editing and to all the fine folks involved in making this book and all my charts and graphs look great! Thanks also to everyone else who contributed to getting this book done well and on time And last but not least, a tip of my cap to all the fine technical reviewers for this and all the prior editions of this book who helped to ensure that I didn’t write something that wasn’t quite right www.downloadslide.com Publisher’s Acknowledgments Senior Acquisitions Editor: Tracy Boggier Production Editor: Siddique Shaik Development Editor: Victoria M. Adang Cover Image: © Andy Roberts/Getty Images Copy Editor: Danielle Voirol Technical Editor: Ned Gandevani, PhD, MBA www.downloadslide.com www.downloadslide.com www.downloadslide.com www.downloadslide.com www.downloadslide.com www.downloadslide.com www.downloadslide.com WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA ... Rules for Successful Investing Saving is a prerequisite to investing Unless you have wealthy, benevolent relatives, living within your means and saving money are prerequisites to investing and. .. accounts and understand the impact of your tax bracket when investing outside tax-sheltered retirement accounts 12 Consider the value of your time and your investing skills and desires Investing in. .. from, including stocks, bonds, real estate, small business, and funds Deepen your understanding of risks and returns so you can make informed investing decisions and react to changes in the market