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I approach the topic of investments differently than other textbooks. Most books take an asset-based approach. In other words, they discuss stocks, bonds, mutual funds, and other assets; these assets will change over time as new assets are developed and sold. I take a principles-based approach because the principles of good investing will not change over time. There are important investing principles that, if followed, will result in a quality investment plan and lead to a successful investment portfolio. The principles are the following:

  1. Know yourself.
  2. Understand risk.
  3. Stay diversified.
  4. Invest low-cost and tax-efficiently.
  5. Invest for the long run.
  6. Use caution if you must invest in individual assets.
  7. Monitor portfolio performance against benchmarks.
  8. Don’t waste too much time and energy trying to beat the market.
  9. Invest only with people and institutions that are high-quality, licensed, and reputable.
  10. Develop a good investment plan and follow it closely.

Follow these principles and you will have a much better chance of having a successful portfolio.

There is a learning tool used to teach investments called the “investment hourglass.” It discusses what you should do before you invest and what you should do as you invest. There are several steps you should take before you invest. Remember the top half of the investment hourglass: before you invest, you should:

  1. Be square with the Lord,
  2. Have adequate health and life insurance to care for the needs of your family in the event that something were to happen to you,
  3. Be out of high-interest credit card and consumer debt, and
  4. Have written down your goals, be living on a budget, and have a well-written and well-thought-out investment plan.

These steps help you prepare a “priorities-based” investment plan; in this plan, God comes first, then family, then personal responsibility and accountability, and then investments. There is no better way to start investing than to have your priorities in order.

The bottom of the investment hourglass is divided into four levels, representing the phases of investment. The first level of the hourglass represents the phase in which you develop your emergency fund and food storage. The second level represents the phase in which you develop your portfolio’s core, which includes broad market index funds or core mutual funds. The third level represents the phase in which you diversify your portfolio by broadening and deepening your asset classes. Finally, the fourth level represents the phase in which you develop your opportunistic assets, such as individual stocks and sector funds. The bottom of the investment hourglass puts risk into perspective. You start with the least risky assets and take on more risk as the size of your assets increase.

There are six important lessons to be learned from this section on key lessons from investing.

  1. Correct principles lead to better lives and better portfolios. There is a relationship between principles and what we can accomplish. Understand correct principles before you invest and there is a better chance that you will invest successfully.
  2. Understand and use correct principles and you have a much better chance of reaching your goals. Investing is not a game, but a tool to help you achieve your personal and family goals.
  3. There is a framework for helping us invest. While it is not the only framework to understanding investing, it is one that has significant support and is based on principles. Understand that framework and you will have a much better chance of building a successful portfolio.
  4. Since life is based on priorities, our investing should follow our priorities as well. We should make sure our priorities are in order first, and then we should begin investing. And we should make sure that we do not begin investing before we take care of our other personal and family responsibilities.
  5. There is an order to what we should do before investing. Understand the principles, and follow that order. There is a greater chance that you will achieve your goals.
  6. There is an order to building your portfolio as well, and it should be based on risk. Since return and risk are related, you should understand the risk of what you invest in and manage your portfolio accordingly.


Now that you have completed this section, ask yourself the following questions:

  1. Can you recognize the ten principles of successful investing?
  2. Do you understand the investment hourglass?


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