Schwab's Investing Principles: Becoming a Successful Investor

by Mark W. Riepe, CFA, Senior Vice President, Schwab Center for Financial Research
February 27, 2008

The first article in an 11-part series on Schwab’s investing principles.

Our company’s purpose is to help everyone be financially fit. One aspect of financial fitness is to be a successful investor.

For many people, becoming a successful investor may seem excessively difficult either because they’ve tried before and failed, or are just trying to get started and don’t know where to begin. Investing can seem confusing, but it doesn’t have to be. In fact, we believe that becoming a successful investor can be boiled to down to three steps.

Create a plan.
Put it into action.
Stay on track.

It all starts with creating an investment plan. Your investment plan establishes why you’re investing in the first place and what you hope to accomplish.

But planning is never enough all by itself. Our second step is to put the plan into action, because no plan was ever successful just collecting dust on a shelf.

After you've implemented your plan, there’s a tendency to relax and think all the work is done. That would be a mistake. Successful investing is not a one-time event. It requires a third step which is to stay on track. Keep in touch with your portfolio and make sure it’s still on target to meet your goals through the inevitable changes in the markets as well as your own evolving circumstances.

10 investing principles
To help you navigate through these three steps we’ve created a more detailed set of 10 investing principles. The first two principles bring to life the first step of creating a plan. Principles 3 through 7 are about effectively implementing that plan. The final three principles, 8 through 10, will help you stay on track and become a successful, lifetime investor.

3 important steps	10 proven principles
Create a plan	1. Having an investment plan that is realistic and actionable is crucial to meeting goals. 2. Understand your plan, follow it and adjust it when things change in your life.
Put it into action	3. Saving and spending rates have the greatest impact on success. 4. Diversification is the second-most important factor in reaching goals. 5. Select the asset allocation that’s right for you and stick with it. 6. Choosing professionally managed investments can be a better way to invest. 7. Acting now generally beats waiting.
Stay on track	8. Periodic checkups keep a portfolio healthy. 9. Progress toward goals is more important than short-term performance. 10. Use the right benchmarks to evaluate performance.

We believe these principles work. In my own career I’ve worked with both individual and institutional investors. Sophisticated investors and neophytes. Older investors and younger ones. What links all these investors together is that the principles of success remain the same.

Unfortunately, I’ve also come across investors who haven't achieved success, and in some cases have damaged themselves. In all these situations, the root cause of the difficulties was a failure to follow one or more of these principles.

So spend some time reviewing each of these principles and thinking about how they apply to your situation. I think you’ll find it to be a good investment.

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. Examples provided are for illustrative purposes only and not intended to represent results you should expect to achieve.

Past performance is no guarantee of future results. Diversification strategies do not assure a profit and do not protect against losses in declining markets.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

(0208-3943)

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Schwab's Investing Principles

Intro: Becoming a Successful Investor

1. A Blueprint for Success

2. Stick With Your Plan

3. The Top Success Factor

4. Diversification Is Key

5. Get the Mix Right

6. Go With the Pros

Coming soon
7. Act Now, Don't Wait
8. Get Regular Checkups
9. Keep Your Eyes on the Prize
10. How to Measure Success

See also

Our time-tested approach to investing