Schwab's 7 Investing Principles
The fundamentals you need for investing success.
All currency on this page refers to the U.S. dollar (US$).

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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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.
It pays to invest early.
Maria and Ana 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.



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Don't try to predict market highs and lows.
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.



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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.



Assets 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 nearly impossible to predict which asset classes will perform best in a given year.
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Take action on these principles with Schwab's investment advice solution.

4. Minimize fees.
- Markets are uncertain; fees are certain.
- Pay attention to net returns.



Fees can eat away at your 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.
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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 losses.1



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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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.



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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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