Buy low.
At the book's website, a chart indicates if stocks are priced high or low. "If they seem to be low-priced, you should buy them," Stein says. Stein and DeMuth are talking only about broad indexes of stocks, not individual stocks. "We don't believe that anybody -- not even Warren Buffett -- can pick individual stocks over long periods of time. You can pick times when the whole market is likely to do well over the next 20 years."
Diversify.
"Stocks fluctuate," Stein says, "so it is a very good idea to have some money in stocks, some money in bond indexes and some money in real estate investment trusts." Stein has his money diversified: in cash, in the Dow Jones Industrial Average index fund, in conservatively run real estate investment trust indexes and in conservatively run preferred stock indexes.
Don't always listen to your broker.
Be very selective when you buy. "Your broker is not your friend," says DeMuth. "Your broker could be your friend," Stein corrects with a laugh, "but he's not necessarily. Your broker is acting in his best interest, not in your own best interest. Follow your own best interest."
Don't be a day trader.
Being a day trader is great for the online trading companies, but Stein and DeMuth warn off the individual investor. "It's simply a process of transferring money from your bank account into the brokerage firm's account," DeMuth says.
Stay out of debt and don't go on margin.
Your stockbroker may offer to lend you money to match your investment -- politely decline. "They put a stunning interest rate on that margin," Stein says. If the stock price goes down, you have to put up more cash to pay for the decline on the collateral on the loan. "Getting a margin call from a broker is one of the most upsetting things that can happen to you," Stein says. "You rarely see a person go broke in the stock market unless he's been on margin."
Add to your savings regularly.
Before beginning any investment program, be sure to save enough money. "On the television show Cavuto on Business [on Fox News Channel], I always say, 'No piece of advice is going to mean as much to the ordinary viewer than if he just puts $500 into his savings account every month.'" In short, there's no point in putting money in the market without an adequate safety net in savings. "One of the worst things in life is worrying about money," Stein says. "There is no greater drain on human happiness than to be worried about how to pay your bills. You'll never be sad that you have too much savings."
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