Random Walk Down Wall St. Outline for Ch14-15

866 WordsOct 6, 20084 Pages
Chapter 14 A Life-Cycle Guide to Investing Basics: age & income & specific responsibilities in life matter in the mix of assets in one’s portfolio. Five principles to allocate assets: 1. Risk & Reward Higher risk is the price for more returns 2. Actual risk in stocks & bonds depends on the length of time you hold them – staying power. The longer time you can hold, the greater should be the share of common stocks. 3. Dollar-cost averaging - Periodic investments of equal dollar amounts Drawback: (a). commission fee is high (b). unlikely to provide highest return 4. Rebalancing can help reduce investment risk and increase returns - Bringing the proportions of your assets devoted to different asset classes back…show more content…
Rule 2: Never pay more for a stock than can be justified by the firm’s foundation value. Rule 3: Buy stocks with stories that can attract investors (castle in the air) Rule 4: Trade as little as possible to avoid transaction fees. The Substitute-Player Step – hiring a professional Wall St Walker: - Good: Picking from active mutual-fund managers frees one from having to select stocks and doing paperwork and records for tax purpose. Bad: difficulty in choosing the investment managers – you cannot depend on an excellent record continuing persistently in the future. - The Morningstar Mutual-Fund Info. Services What’s Morningstar? – provides you with the most comprehensive sources of mutual-fund information/also uses a five-star rating system to evaluate, though not always true. - Mutual-Fund Costs: 1. Leading Fees – front-end load/Back-end loads and exchange fees 2. Expense Charges – Operating and investment management exp./12b-1 charges *. Mutual-fund asset performance bears no relationship to the exp charged Avoid funds with high turnovers - The Malkiel Step Buy highly discounted closed-end funds – even if

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