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7 Investing
Principles

The fundamentals you need for investing success.

Set Goals

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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New house—with room to grow.

Having a financial plan can help you navigate major life events, like buying a new house. Find out what this young couple learned.

Find out how to create a financial plan with Schwab Intelligent Advisory. Learn more. Call 888-838-0782 Find a branch Chat

Get Invested

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

Maria and Ana each 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.

It pays to invest early.

Growth of $30,000 over 20 years versus 10 years

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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.

Don't try to predict market highs and lows.

Growth of $100,000 fully invested versus missing key 2009 trading days

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Take action on these principles with Schwab’s investment advice solutions. Learn more. Call 888-838-0782 Find a branch Chat

Get Invested

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

Asset 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 been nearly impossible to predict which asset classes will perform best in a given year.

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What Is Your Risk Tolerance?

Use the slider to select a level of risk. Then see how a hypothetical portfolio with that risk level performed each year over a 30-year period in the graph.
Risk Tolerance
question mark iconX Risk tolerance: Your ability to withstand the market’s good and bad years. Your risk tolerance can depend on your age, income and financial goals.
low high
Created with Highcharts 4.2.6CashBondsStocksBondsAsset: 90%
  • Stocks 20%
  • Bonds 70%
  • Cash 10%
Annual Performance Over 30 Years
Created with Highcharts 4.2.6Annual ReturnSeries 1-40%-30%-20%-10%0%10%20%30%40%
Annual Return:
2013: -0.8%
1986198819901992199419961998200020022004200620082010201220142016198719891991199319951997199920012003200520072009201120132015
  • Best Year: 21.0%
  • Worst Year: -3.6%
Swipe to view

What Is Your Risk Tolerance?

Use the slider to select a level of risk. Then see how a hypothetical portfolio with that risk level performed each year over a 30-year period in the graph.
Annual Performance Over 30 Years
Risk Tolerance
question mark iconX Risk tolerance: Your ability to withstand the market’s good and bad years. Your risk tolerance can depend on your age, income and financial goals.
Low
High
  • Stocks 0 %
  • Bonds 100%
  • Cash 0%
Created with Highcharts 4.2.6
Created with Highcharts 4.2.6Annual ReturnSeries 1
1986198819901992199419961998200020022004200620082010201220142016
-40%-30%-20%-10%0%10%20%30%40%
15.3
2.8
7.9
14.5
9.0
16.0
7.4
9.7
-2.9
18.5
3.6
9.7
8.7
-0.8
11.6
8.4
10.3
4.1
4.3
2.4
4.3
7.0
5.2
5.9
6.5
7.8
4.2
-2.0
6.0
0.5
2.6
  • Best Year: 1995 18.5%
  • Worst Year:1994 -2.9%
Important Information About Asset AllocationX For illustrative purposes only. Not representative of any specific investment or account.
Annualized returns are calculated using data from 1986 through 2016 and include reinvestment of dividends, interest, and capital gains. Stocks are represented by the S&P 500 Index, bonds by Barclays U.S. Aggregate Bond Index and cash by the IA SBBI U.S. 30-Day Treasury Bill Index. Indexes are unmanaged, do not incur fees or expenses, and cannot be invested directly. Past performance is not a guarantee of future results.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice.

Take action on these principles with Schwab’s investment advice solutions. Learn more. Call 888-838-0782 Find a branch Chat

Get Invested

4. Minimize fees and taxes

Markets are uncertain; fees are certain

Pay attention to net returns

Minimize taxes to maximize 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.

Fees can eat away at your returns.

Difference in account growth when fees are lower

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Charles Schwab on taxes.

Schwab founder and chairman explains the importance of tax-efficient investing.

$3,000 is invested in the S&P 500 Index every year for 10 years, then nothing is invested for the next 10 years. Asset location matters. Placing investments in a tax-deferred account can result in higher ending wealth after 20 years.

Try to minimize taxes.

Difference in account growth when taxes are deferred

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Take action on these principles with Schwab’s investment advice solutions. Learn more. Call 888-838-0782 Find a branch Chat

Get Invested

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

Consider options as a hedge against market declines—certain options strategies can be designed to help you offset losses1

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.

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Diversify to manage risk.

Investing too much in any single sector or asset class can result in major losses when markets are volatile. Listen to one woman's experience.

Take action on these principles with Schwab’s investment advice solutions. Learn more. Call 888-838-0782 Find a branch Chat

Stay on Track

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.

If left unattended, a portfolio can "stray" over time.

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Take action on these principles with Schwab’s investment advice solutions. Learn more. Call 888-838-0782 Find a branch Chat

Stay on Track

7. Ignore the noise

Press makes noise to sell advertising

Markets fluctuate

Stay focused on your plan

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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Charles Schwab on market volatility.

Schwab's founder and chairman explains the importance of staying calm when markets are not.

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