Generally Accepted Investment Principles

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Investors can turn to many sources for investment advice—such as books, magazines, newspapers, mutual fund companies, and web sites.

Regardless of their choice to follow all, or none of the advice offered by these sources, a personal style of investing will be established.

Investors should establish an emergency fund in short-term safe assets and not held in retirement accounts.

• Retirement funds should be invested primarily in stocks and long-term fixed-income securities.

• The percentage of assets invested in stocks should decline as an investor ages. A popular rule of thumb is to subtract a person’s age from 100 and invest that percentage of total assets in stocks.

• The percentage of assets invested in stocks should increase with wealth because wealthy individuals can generally tolerate greater risk.

• In general, tax-advantaged assets (municipal bonds) should be held outside of retirement accounts and only by investors in high tax brackets, while assets that are taxed more heavily should be held in retirement accounts.

• All Investors should diversify their total portfolios across asset classes, and the equity portion should be well-diversified across industries and companies.
Most sources of investment advice recognize the optimal asset mix for a particular household might differ from the general mix they recommend.

This difference is primarily because of the special circumstances or risk preferences of the given household. Time horizon, risk tolerance, income stability, and other factors influence asset allocation.

People who on average are better educated and more experienced at managing self-directed retirement accounts than the general U.S. population, do appear to invest according to generally accepted investment principles.