Remember Eight Financial Rules to Live By

September 16, 2008
Ken

,
Daria Dolan

Physician's Money Digest, April15 2003, Volume 10, Issue 7

Every physician-investor andtheir family have their ownfinancial needs and methods.It helps, though, to have somegeneral rules to guide your personalmoney management. The followingare 8 rules that should put youand your household on the righttrack to investment success:

1. Know thy sleep quotient.There's an easy way to figure outhow much risk you can tolerate. Askyourself: "Will I be able to sleep atnight if I put my money into thisinvestment? Will my significant otherbe able to sleep?" If there is any tossingand turning over an investment,get out of it immediately.

2. Join or start an investmentclub. It's a great idea to plot yourinvestment strategies with like-mindedfriends or colleagues. Youcan bounce ideas off one anotherand divide the research duties, sothat you won't be overwhelmed. It'sthe best idea since Pop-Tarts forspouses or partners to join together,as 10 heads are better and moreobjective than only 2.

3. Keep track of what you own,but take a long-term view. Forgettrading day-to-day. Check yourstocks on a regular basis, about oncea week, but don't be an obsessivetype. The market moves, and youcan't stop it. At the same time, "buyand hold" doesn't mean "walk awayand forget about it."

4. Invest regularly. Establish aplan to buy 1 or 2 stocks per month,if market conditions are right, andstick to it. Invest in small incrementseach month rather than lump sums.This way you'll achieve dollar-costaveraging in the prices you pay.

5. Rely on solid research, not"hot tips." While a hot stock mayget its 15 minutes of fame, a goodrule of thumb is to avoid whateverstocks are the darlings of WallStreet. Yes, you might get in earlyenough to make a profit, but don'tassume it's going to keep going up.

6. Go with stocks that youknow. How can you effectively evaluatea company involved in businessthat you don't understand? Be on thelookout for companies with newideas that make sense to you, andnew approaches to old ideas.

7. Balance risk in your portfolio.If you invest with lots of risk, youmight suffer losses you can't afford.But if you invest with no risk, yourinvestments won't grow to provideyou with the total return.

8. Don't minimize the impactof compounding. A lot of peoplebelieve that it's impossible to achievefinancial security without having abig pile of money to begin with.Wrong. If you take just $1 per dayand invest it at 8% compounded interest,on average, here's what you'dhave: after 5 years, $2245; after 10years, $5595; after 20 years, $18,045;and after 30 years, $45,751.

Ken and Daria Dolan are thehosts of The Dolans, the nation's#1-rated personal finance show, which originatesfrom WOR-AM in New York.For 4 years, they served asmoney editors on CBS This Morning and CBSNews Saturday Morning. They also previouslyhosted their own popular personal financeshow on CNBC and have appeared on manyother television shows, including The TodayShow. This article was adapted from Don'tMess with My Money, by Ken and DariaDolan, copyright 2003. Reprinted with permissionfrom Currency/Doubleday Books.