Christine Benz, the personal finance expert at Morningstar, has an excellent article about the four investment rules to ignore. These “rules” are in wide practice throughout the industry, but they don’t hold up under close inspection. In fact, they will destroy your long-term returns if you let them.
1. Consistency of returns is important in investment selection.
2. If an investment has been a laggard over the past three or five years, cut it loose.
3. Your risk tolerance should determine your asset allocation.
4. It’s ok to go to cash when you are nervous about the market.
This article is a must-read.
—-this article originally ran 6/25/2009. As is the case with all timeless investment wisdom, it’s still true. Ignoring them or pretending they are false doesn’t make them any less true! There are a lot of things in the investment industry that people wish were true, but that doesn’t make it so. Read this article carefully again and get a good start on 2011.
Posted by Mike Moody 
