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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 Portfolios Premium.

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.

Schwab can help you take
action on these principles.

Three ways to take the next step:

Schwab Intelligent Portfolios Premium—a new way to plan for your financial goals.

Schwab’s investment advice solutions— choices for a variety of investor needs.


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1. Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options before considering any option transaction. Investing involves risks, including loss of principal. Hedging and protective strategies generally involve additional costs and do not ensure a profit or guarantee against loss.

Please read the Schwab Intelligent Portfolios Solutions disclosure brochure for important information, pricing, and disclosures relating to the Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium programs.

Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium are made available through Charles Schwab & Co. Inc. ("Schwab"), a dually registered investment advisor and broker dealer. Portfolio management services are provided by Charles Schwab Investment Advisory, Inc. ("CSIA"). Schwab and CSIA are subsidiaries of The Charles Schwab Corporation.

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.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, please consult with a qualified tax advisor, CPA, financial planner or investment manager.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed-income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors.

Municipals and tax-exempt bonds are not necessarily a suitable investment for all persons. Information related to a security's tax-exempt status (federal and in-state) is obtained from third parties and Schwab does not guarantee its accuracy. Tax-exempt income may be subject to the alternative minimum tax (AMT). Capital appreciation from bond funds and discounted bonds may be subject to state or local taxes. Capital gains are not exempt from federal income tax.

Diversification strategies do not ensure a profit and do not protect against losses in declining markets.

International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.

High-yield bonds and lower-rated securities are subject to greater credit risk, default risk, and liquidity risk.

Treasury Inflation Protected Securities (TIPS) are inflation-linked securities issued by the U.S. government whose principal value is adjusted periodically in accordance with the rise and fall in the inflation rate. Thus, the interest amount payable is also impacted by variations in the inflation rate as it is based upon the principal value of the bond. It may fluctuate up or down. Repayment at maturity is guaranteed by the U.S. government and may be adjusted for inflation to become the greater of either the original face amount at issuance or that face amount plus an adjustment for inflation.

Risks of REITs are similar to those associated with direct ownership of real estate, such as changes in real estate values and property taxes, interest rates, cash flow of underlying real estate assets, supply and demand, and the management skill and credit worthiness of the issuer.

Commodity-related products may be extremely volatile, illiquid and can be significantly affected by underlying commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions, regardless of the length of time shares are held. Investments in commodity-related products may subject the fund to significantly greater volatility than investments in traditional securities and involve substantial risks, including risk of loss of a significant portion of their principal value.

Indexes are unmanaged, do not incur management fees, cost or expenses, and cannot be invested in directly.

Index Definitions

The S&P 500 Index is a market capitalization-weighted index comprising 500 widely traded stocks chosen for market size, liquidity and industry group representation.

The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership.

MSCI EAFE® (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization index designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. It consists of 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

Bloomberg Barclays U.S. Aggregate Bond Index is a market-value-weighted index of taxable investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of one year or more.

Citigroup U.S. 3-Month Treasury Bill Index measures monthly total return equivalents of yield averages that are not marked to market. The 3-Month Treasury Bill Index consists of the last three three-month Treasury bill issues.

Dow Jones U.S. Large-Cap TSM Index is a subset of the Dow Jones U.S. Total Stock Market Index, which measures all U.S. equity securities with readily available prices. It represents the largest 750 stocks and is float-adjusted market cap weighted.

Dow Jones U.S. Small-Cap TSM Index is a subset of the Dow Jones U.S. Total Stock Market Index, which measures all U.S. equity securities with readily available prices. The index represents the stocks ranked 751-2,500 by full market capitalization and is float-adjusted market cap weighted.

FTSE Developed ex-U.S. Index comprises large (85%) and mid (15%) cap stocks providing coverage of developed markets (24 countries) excluding the U.S.

FTSE Emerging Index is a free-float, market-capitalization weighted index representing the performance of around 850 large and mid-cap companies in 22 emerging markets.

Dow Jones U.S. Select REIT Index intends to measure the performance of publicly traded REITs and REIT-like securities. The index is a subset of the Dow Jones is Select Real Estate Securities Index (RESI), which represents equity real estate investment trusts (REITs) and real estate operating companies (REOCs) traded in the U.S.

Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for commodity investments.

Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

Bloomberg Barclays U.S. Treasury Inflation Protected Securities Index Is a market-value-weighted index that tracks inflation-protected securities issued by the U.S. Treasury. To prevent the erosion of purchasing power, TIPS are indexed to the non-seasonally adjusted Consumer Price Index for All Urban Consumers, or the CPI-U (CPI).

Citigroup World Government Bond Index (WGBI) measures the performance of fixed-rate, local currency, investment grade sovereign bonds. The WGBI is a widely used benchmark that currently comprises sovereign debt from over 20 countries, denominated in a variety of currencies, and has more than 25 years of history available.

Bloomberg Barclays U.S. High-Yield Very Liquid Index includes publicly issued U.S. dollar denominated, non-investment-grade, fixed-rate, taxable corporate bonds that have a remaining maturity of at least one year and have $600 million or more outstanding face value.

Bloomberg Barclays U.S. Treasury 3-7 Year TR Index measures the performance of public obligations of the U.S. Treasury that have a remaining maturity between three and seven years.

S&P GSCI Precious Metal TR Index provides investors with a reliable and publicly available benchmark for investment performance in the precious metals market.

Bloomberg Barclays Global Aggregate Ex-U.S. Bond TR Index is designed to be a broad-based measure of global investment-grade fixed income markets outside of the U.S.

Credit Notice: From Investor's Business Daily, January 28, 2019, ©2019 Investor's Business Daily, Inc. All rights reserved. Used by permission and protected by the Copyright Laws of the United States. The printing, copying, redistribution or retransmission of this Content without express written permission is prohibited. Results based on an Investor's Business Daily ('IBD") and Technometrica survey of 2,762 visitors to the IBD website between November and December 2018. Those individuals were asked to name and rate their primary online broker. Limiting data analysis to only those firms that were cited by 200 or more participants, six online brokers were ranked based on Customer Experience Index scores for fourteen separate attributes. For further information on how the ratings were calculated, see IBD's Criteria and Methodology.

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