In the past, most people can get by just fine without learning much about investing or building a portfolio. Pretty much everyone belonged to a defined benefit plan and their financial lives were much simpler. These days, financially speaking, most of us are on our own. It goes without saying that DIY investors need to be familiar with the basics of investing. Even those investors who work with an advisor need at least some basic investment knowledge to (a) hire a competent professional and (b) be confident that the advisor is managing their money well.
In a long-running rebate on the merits of Group RESP plans, a remark by a commenter touched a nerve:
To work with mutual funds or stocks, parents need to know what they are doing. This takes a lot of time and planning. I am too busy for that.
As you can imagine, I am not very sympathetic to the argument. If you are like me, you are exchanging eight hours of your precious time every weekday for a pay check and you owe it to yourself and your family to be an effective steward of your money. The reality of modern life is that, financially, we are on our own. Our retirement, our kids’ education and our general financial well being depends on how well we look after our money.
To become a successful investor, you should lay a strong foundation by taking the time to read a few good books. After that, you only need a few hours to devise an asset allocation, invest accordingly and spend about fifteen minutes every year to rebalance your portfolio.
If you have worked your way through my recommended books, you don’t have to sacrifice your leisure hours (unless you buy individual stocks or write a blog) to constantly keep up. Over the years, I’ve learnt both from reading and from experience that there are only a handful of rules for being a successful investor:
- Don’t take stupid risks.
- Minimize expenses and taxes.
- Don’t trade too much.
That’s all there is to investing. Now, you can get on with gardening or photography or whatever with the confidence that you will do better than the vast majority of investors who are busy chasing the latest hot tip they heard on Market Call.