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Cory Jarrell @cdjarrell
, 14 tweets, 3 min read Read on Twitter
1/ Book highlights from "Why Smart People Make Big Money Mistakes and How to Correct Them: Lessons from the Life-Changing Science of Behavioral Economics" by Belsky and Gilovich
2/ Minimize losses by diversifying: stocks (or stock mutual funds), bonds (or bond mutual funds), money market funds, even real estate (if you don’t own a house, then ideally through real estate investment trusts)
3/ Nobody wants losses however they do have a few advantages. Losses on investments that you’ve held for less than twelve months can be written off against capital gains; losses on investments held longer than twelve months can be deducted from ordinary income.
4/ Professional investors (and people in general) suffer from overconfidence. Problem with overconfidence isn't optimism; the real problem is the inability to temper optimism as a result of prior experience. Frankly, we don’t learn well enough from our mistakes.
5/ Invest-in-what-you-know approach is risky (employees have >1/3 retirement in their company stock) since your job is already tied to the fortunes of your workplace. Most recommend you keep no more than 10 percent of your 401k assets in your own company’s shares.
6/ General rule of investing (besides diversify): “100 minus your age rule”, or the percentage of 100 minus the age you're at should be in stocks (preferably index mutual funds) and any money you’ll need in next 5 years should be cash or cash equivalents like government bonds.
7/ Mutual funds are preferable to individual stocks as there's diversification built in, index funds are even better as they're even more diversified and reflect the overall market. Over periods of a decade or more, roughly 75 percent of all stock funds underperform the market.
8/ Other adv of index funds are that their expense ratios and tax bills are the lowest bc they don't require a lot of buying and selling and have much lower fee structures than mutual funds. A half a pct point over a long time will add up
9/ Stocks, remember, represent ownership interest in businesses. Stock movements in the short term are about emotions and rumors. In the long run, they’re about facts and profits.
10/ One of the best ways to evaluate individual stocks is price-to-earnings ratios, or P/Es. P/Es reflect how much of a premium other investors are willing to pay to own that stock. The higher the P/ E, the higher the premium— and, therefore, the more popular that stock is.
11/ Stocks with low P/Es might not be flashy but are often safer, even with their diminished investor enthusiasm.
12/ General individual stock advice: Put no more than 10 percent of your nest egg into stocks of individual corporations. The rest should be spread out over other kinds of investments.
END/ That's about it. Invest early and often, as the compounding effects are powerful over a long time frame, thus the advice of stocks (index funds) as primary investment. Pay off debts. Have high deductibles on insurance plans, as chances are small making of a claim.
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