All You Need Is a Simple, Well-Diversified Portfolio – Part II

3. No Market Timing.
Dollar cost averaging is king.  The key principle is keep investing at a regular interval.  You never need to worry about the buy-low-sell-high, or hedging, or any other short term investment techniques.  Markets are random and unpredictable.  Dollar cost averaging will reduce the risks in the long run.

4. The Power of Compounding

A 25-year-old can start an IRA with $3,000 and invest $3,000 every year and with ten percent average returns every year, retire a millionaire at 65. The 25-year-old actually has invested only $120,000 over 40 years; however, the rest is compounded interest, dividends, and capital appreciation.

5. Save at least 10% of your income.

You don’t need a Starbucks latte or a McDonald’s Big Breakfast every day.  Live within or below your means.  A friend of mine started late to save for his retirement.  I got him started with 401K by saving 6% in order to get the maximum match from his company.  From then on, every year, he’d increase his savings by 1 or 2 percent.  13 years later, he now has more than $200K in his 401K.  Guess what?  He makes less than $45K a year.  You can do it, too.

6. Just save, save, and save.

Don’t waste time watching cable news, CNBC, reading financial reports, listening to the so called experts’ crazy talks, studying stock charts, or reading financial newspapers.  Let your money work for you.  Let your money do the heavy lifting for you.  You just go on with your daily routines and enjoy life.

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