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Schwab's 7 Investing Principles

The fundamentals you need for investing success.

All currency on this page refers to the U.S. dollar (US$).


1. Establish a financial plan based on your goals.

  • Be realistic about your goals.
  • Review your plan at least annually.
  • Make changes as your life circumstances change.

Successful planning can help propel net worth.

In a study of Americans over 50, successful planners—those who stuck with their plans—achieved an average total net worth three times higher than those who didn't plan.

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2. Start saving and investing today.

  • Maximize what you can afford to invest.
  • Time in the market is key.
  • Don't try to time the markets—it's nearly impossible.

It pays to invest early.

Maria and Ana invested $3,000 every year on January 1 for 10 years—regardless of whether the market was up or down. But Maria started 20 years ago, whereas Ana started only 10 years ago. So although they each invested a total of $30,000, by 2017 Maria had about $30,000 more because she was in the market longer.

Example chart: it pays to invest early Example chart: it pays to invest early Example chart: it pays to invest early
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Don't try to predict market highs and lows.

2009 was a very volatile year for investing, so many investors were tempted to get out of the market—but investors withdrew at their peril. For example, if you had invested $100,000 on January 1, 2009 but missed the top 10 trading days, you would have had $43,000 less by the end of the year than if you’d stayed invested the whole time.

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3. Build a diversified portfolio based on your tolerance for risk.

  • Know your comfort level with temporary losses.
  • Understand that asset classes behave differently.
  • Don't chase past performance. 
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Assets classes perform differently.

$100,000 invested in 1997 would have had a volatile journey to nearly $400,000 in 2017 if invested in U.S. stocks. If invested in cash investments or bonds, the ending amount would be lower, but the path would have been smoother. Investing in a moderate allocation portfolio would have captured some of the growth of stocks with lower volatility over the long term.

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It's nearly impossible to predict which asset classes will perform best in a given year.

Asset class chart

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4. Minimize fees.

  • Markets are uncertain; fees are certain.
  • Pay attention to net returns.
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Fees can eat away at your returns.

$3,000 is invested in the S&P 500 Index every year for 10 years, then nothing is invested for the next 10 years. Over 20 years, lowering fees by three-quarters of a percentage point would save Maria roughly $9,000 and Ana roughly $3,000.

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5. Build in protection against significant losses.

  • Modest temporary losses are okay, but recovery from significant losses can take years.
  • Use cash investments and bonds for diversification.
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Steep declines are hard to bounce back from.

In recent downturns, an all-stock portfolio took longer than a diversified portfolio to return to its prior peak.

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Defensive asset classes have performed better when stocks break down.

During two recent market downturns, defensive assets had positive returns—significantly outperforming U.S. stocks.

Defensive asset classes chart example Defensive asset classes chart example Defensive asset classes chart example
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6. Rebalance your portfolio regularly.

  • Be disciplined about your tolerance for risk.
  • Stay engaged with your investments.
  • Understand that asset classes behave differently.

Regular rebalancing helps keep your portfolio aligned with your risk tolerance.

A portfolio began with a 50/50 allocation to stocks and bonds, and was never rebalanced. Over the next five years, the portfolio drifted to a 60/40 allocation—and was positioned for larger losses in 2008 than it would have experienced if it had been rebalanced regularly.

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7. Ignore the noise.

  • Press makes noise to sell advertising.
  • Markets fluctuate.
  • Stay focused on your plan.
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Progress toward your goal is more important than short term performance.

Over 20 years, markets went up and down—but a long-term investor who stuck to her plan would have been rewarded.

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