Allan Roth thinks investing is so simple a child can do it. But that’s not to say adults feel the same way.
“Investing is so simple any 8-year-old can do it but so emotional it’s hard for adults to do it,” Roth explains. The financial planner and DU adjunct professor’s book, How a Second Grader Beats Wall Street: Golden Rules Any Investor Can Learn (Wiley, 2011), outlines a simple approach to creating an investment portfolio that can be used by any new investor. Roth urges investors to keep their approaches simple and offers the following tips:
• Don’t overcomplicate. If you can’t explain your investment strategy, you might be in trouble.
• Dare to be dull. If you are a small investor, consider CDs, bonds and money markets.
• Don’t lend money to people you know can’t pay it back. The same goes for lending it to people when you don’t know what they will be doing with it (i.e. Bernie Madoff).
• Avoid buying just what’s hot and trendy. You can save a little room for fun with volatile and trendy stocks (think BP or Apple), but your family’s future shouldn’t depend on it.
• Buy low and sell high — not the other way around. Don’t panic when the market falls and sell everything.
• Don’t put too much stock into what the experts say. If there really was an expert who knew how to beat Wall Street, he wouldn’t be dishing out free advice. Instead, he’d be a billionaire.
• Diversify and simplify. Remember the saying “Don’t put all your eggs in one basket.”
• Keep in mind that something can always go wrong.
Allan Roth teaches investment and behavioral finance courses at DU and has been working in the investment world for 25 years. He writes a column for CBS MoneyWatch.com and is the founder of Wealth Logic LLC, an investment advisory and financial planning firm.