Foolish investing principles

At The Motley Fool, we’re on a dead-serious mission to make the world smarter, happier and richer — in part by promoting Foolish investing principles such as the three key ones below. (In Fooldom, being “Foolish”with-a-capital-F is a good thing!)

1

Buy to hold. The investing advice you’ll often hear is to “buy and hold,” but that suggests that you might just buy and forget about your holdings. Don’t do that unless you’re investing in the stock market via lowfee broad-market index funds. With individual stocks, you should plan to hold them for at least five years — if not decades — to give them time to create all the value you expect from them. But keep up with their progress so that you don’t end up surprised if their fortunes change.

2

Aim to build a welldiversified portfolio of at least 25 stocks to balance risk and reward. You want to own enough different stocks to ensure that one underperformer doesn’t sink your portfolio or your investing confidence, while increasing the odds that you’ll have one or more strong outperformers. If your money was evenly distributed among five stocks and one of them crashed hard, it would make a meaningful dent in your portfolio; if 1 in 25 or 30 stocks crashes, the impact will be much smaller. Meanwhile, if one of your stocks soars 1,000% or 10,000%, it will significantly boost your net worth.

3

Expect stock market volatility — it’s normal. On average, the market drops 10% once a year, 20% every four years and 30% every decade, for all kinds of reasons — which often have nothing to do with the underlying value of the companies in which you’ve invested. It’s smart to avoid selling based on share price alone, but do sell if your reasons for investing in a company no longer apply.

You can learn much more about investing (and personal finance topics) at our free online site, Fool.com.