The Only Investment Guide You'll Ever Need

1. Financial Wisdom Isn't About Getting Rich Quick

This immodestly titled book—the title was the publisher’s idea; in a weak moment I went along—is for people who have gotten burned getting rich quick before.

Avoid the hype. The pursuit of rapid wealth is often a fool's errand, leading to scams and disappointment. True financial wisdom lies in understanding that building wealth is a slow, steady process, not a lottery ticket.

• Beware of schemes promising unrealistic returns.
• Focus on long-term, sustainable strategies.
• Recognize that expertise is often a marketing ploy.

Focus on the forest, not the trees. Don't get bogged down in the minutiae of specific investments. Instead, focus on the big picture: your overall financial outlook and strategy.

• Don't get lost in the details of individual stocks or commodities.
• Understand the broader economic context.
• Prioritize a sensible, diversified approach.

Brevity is a virtue. Long, complex investment guides often leave you more confused than when you started. A few simple, common-sense principles are all you really need.

• Don't overcomplicate your financial life.
• Focus on the core principles of saving and investing.
• Avoid the temptation to chase every new trend.

2. A Penny Saved is More Than a Penny Earned

It means, above all, that a penny saved—not spent—is two pennies earned.

Tax bracket matters. Your tax bracket is the percentage of tax you pay on your last dollar of income, not your average tax rate. This marginal rate is crucial for making financial decisions.

• Understand your marginal tax rate.
• Recognize that saving money is often more effective than earning more.
• A penny saved is worth more than a penny earned due to taxes.

Bulk buying and inflation. Buying in bulk and taking advantage of sales can provide a significant return on your money, often tax-free.

• Stock up on non-perishable items when they are on sale.
• Take advantage of bulk discounts.
• Beat inflation by buying ahead.

Smart spending. Small, consistent savings can add up to significant amounts over time.

• Pay off credit cards to avoid high interest rates.
• Use credit cards that offer rewards.
• Shop around for the best deals on travel and hotels.

3. Budgeting is About Control, Not Deprivation

The idea is to spend less than you earn each year, get out of debt, and build a secure, comfortable future.

Net worth first. Before creating a budget, take stock of your current financial situation by calculating your net worth (assets minus liabilities). This provides a baseline for your financial journey.

• List all your assets and their approximate value.
• List all your debts and their balances.
• Calculate the difference to determine your net worth.

Set realistic goals. Define your financial goals for the short, medium, and long term. These goals will guide your budgeting and saving efforts.

• Set achievable goals that you can exceed.
• Avoid setting unrealistic goals that lead to discouragement.
• Focus on progress, not perfection.

Track your spending. Use a budget to track your income and expenses, identifying areas where you can save money.

• List all sources of income.
• Categorize your expenses.
• Use budgeting tools to track your progress.

4. Trust No One, Especially When It Comes to Your Money

Trust no one. It kills me to say that, and I’ll admit there are exceptions—but the list is shorter than you think.

Take responsibility. Ultimately, you are the only one who truly cares about your money. Don't blindly trust others with your financial future.

• Don't rely on others to make financial decisions for you.
• Educate yourself about investing and personal finance.
• Be skeptical of anyone promising easy riches.

Read the fine print. Don't be swayed by flashy brochures or sales pitches. Always read the prospectus and understand the risks involved.

• Don't be afraid to ask questions.
• Be wary of complex financial products.
• Seek out independent analysis.

Competent and disinterested. Seek advice from experts who are both competent and disinterested, meaning they don't have a financial incentive to steer you toward a particular product.

• Be wary of commissioned salespeople.
• Look for fee-only financial advisors.
• Prioritize transparency and objectivity.

5. Cowardice Can Be a Smart Investment Strategy

The challenge of chickenhearted investing isn’t deciding where to put your money, but resisting the temptation to put it elsewhere.

Safety first. Prioritize safety and liquidity, especially with your first dollars. Savings accounts and money-market funds are for the chickenhearted, but they are also the most sensible place to start.

• Keep an emergency fund in a safe, liquid account.
• Avoid risky investments until you have a solid financial foundation.
• Don't be afraid to be "boring" with your investments.

Long-term perspective. Over the long run, stocks will likely outperform safer investments, but you must be prepared for volatility.

• Understand the difference between debt and equity.
• Recognize that stocks are riskier in the short term but offer higher potential returns over the long term.
• Don't let short-term market fluctuations derail your long-term strategy.

Resist temptation. The key to chickenhearted investing is resisting the urge to chase after the latest hot tip or investment fad.

• Avoid the temptation to put your money into things you don't understand.
• Be wary of "sure things" with outsize payoffs.
• Stick to a sensible, diversified approach.

6. Taxes are a Drag, But There Are Ways to Minimize Them

You have to take responsibility for your own money because no one cares about it as much as you.

Tax-advantaged accounts. Take full advantage of tax-deferred retirement plans like 401(k)s, 403(b)s, and IRAs to reduce your tax burden.

• Contribute the maximum amount allowed to your retirement accounts.
• Understand the difference between traditional and Roth accounts.
• Consider a Roth IRA for tax-free growth and withdrawals.

Tax-smart investing. Use tax-advantaged strategies to minimize the impact of taxes on your investments.

• Give appreciated securities to charity to avoid capital gains taxes.
• Stagger your tax deductions to maximize their benefit.
• Consider tax-free municipal bonds.

Tax planning. Prepare your own taxes or use tax software to save money and ensure accuracy.

• Don't overpay for tax preparation services.
• Use tax software to simplify the process.
• Double-check your tax returns for errors.

7. The Stock Market is a Long Game, Not a Casino

The odd thing about investing—the frustrating thing—is that it is not like cooking or playing chess or much of anything else.

Long-term perspective. The stock market is a long-term investment, not a get-rich-quick scheme. Don't try to time the market or make short-term trades.

• Focus on long-term growth, not short-term gains.
• Avoid the temptation to buy high and sell low.
• Be patient and stay the course.

Diversification is key. Diversify your investments across different sectors and asset classes to reduce risk.

• Don't put all your eggs in one basket.
• Consider international diversification.
• Use index funds to achieve broad diversification.

Ignore the noise. Don't get caught up in the daily fluctuations of the market. Focus on the underlying value of your investments.

• Avoid making emotional decisions based on market news.
• Don't let fear or greed drive your investment choices.
• Stay focused on your long-term goals.

8. Brokers Are Salespeople, Not Gurus

My broker has, from time to time, tried to interest me in commodities.

Brokers have their own interests. Remember that brokers are salespeople who are primarily interested in generating commissions. Don't blindly follow their advice.

• Be skeptical of brokers who push specific products.
• Understand that brokers are not necessarily experts.
• Prioritize your own financial well-being.

Discount brokers. Use discount brokers to minimize transaction costs and avoid unnecessary fees.

• Choose a broker with low commissions and fees.
• Don't pay for advice you don't need.
• Take control of your own investment decisions.

Do your own research. Don't rely on brokers or other "experts" to make your investment decisions. Do your own research and make informed choices.

• Read financial publications and websites.
• Learn about different investment strategies.
• Take responsibility for your own financial education.

9. Family Planning Requires Financial Planning

There is no dignity quite so impressive, and no independence quite so important, as living within your means.

Kids and taxes. Take advantage of tax-advantaged savings plans for your children's education, such as 529 plans and Coverdell ESAs.

• Save money in your children's names to reduce your tax burden.
• Use education savings accounts to save for college expenses.
• Consider 529 plans for tax-advantaged college savings.

Retirement planning. Make sure you and your spouse are both contributing to retirement plans and have a clear understanding of your financial goals.

• Take full advantage of employer-sponsored retirement plans.
• Consider setting up a Roth IRA for tax-free growth.
• Plan for retirement as a couple.

Estate planning. Prepare a will and other necessary documents to ensure your assets are distributed according to your wishes.

• Have a will to avoid probate.
• Consider a living trust to manage your assets.
• Designate beneficiaries for your retirement accounts and life insurance policies.

10. Inheriting Money is a Blessing and a Curse

If you or anyone you know is over 50, I urge you to get pencil and paper ready.

Avoid lifestyle inflation. Don't let a sudden windfall lead to overspending and a higher cost of living.

• Maintain your current lifestyle.
• Avoid the temptation to buy unnecessary luxuries.
• Focus on long-term financial security.

Invest wisely. Don't make rash investment decisions with your inheritance. Instead, follow a sensible, diversified approach.

• Put a portion of your inheritance into safe, liquid investments.
• Invest the rest in a diversified portfolio of stocks and bonds.
• Avoid the temptation to chase after high-risk investments.

Plan for the future. Use your inheritance to secure your financial future and achieve your long-term goals.

• Pay off debts and reduce your financial burden.
• Save for retirement and other long-term goals.
• Consider using a portion of your inheritance to help others.

Last updated: January 28, 2025