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Summary

If you follow and implement the investment process detailed in this chapter, you will be taking advantage of the many benefits it provides. First, the development of specific financial goals helps keep you focused on the long-term and avoid many of the psychological and emotional problems associated with a short-term focus (Chapter 6). Understanding that this strategy will lead you to accomplishing your goals, and you will be less tempted by false promises of getting rich quick (Chapter 11, “Get Rich Quick”). Selecting the investment return that allows you to meet your goals and then choosing the optimal asset allocation is a very disciplined approach to investing. This discipline helps you avoid falling into the traps of being tricked by randomness of returns (Chapter 3, “Patterns and Predictions”), being influenced by the social forces of the media (Chapter 10), and being influenced by your own mood and optimism (Chapter 4, “Mood, Optimism, and Investing”). The asset allocation approach and annual rebalancing solve the problems of becoming underdiversified (Chapter 6) or trying to time the market (Chapter 7, “Timing the Market”). By using an indexing strategy implemented through low-cost mutual funds and ETFs, you avoid the bad advice of the prophets (Chapter 5, “Profits from the Prophets?”) and spare yourself the poor returns of many professionally managed portfolios (Chapters 8 and 9).

In short, a disciplined investment strategy, as presented in this chapter, can help you avoid the type of investment blunders that can devastate your wealth and your dreams for the future. However, it is easier to implement this plan than it is to stick to it. We live in a culture that conditions us to believe that the purpose for investing is to get rich. More specifically, investing is for getting rich quickly. These social and cultural pressures lead to bad investor behaviors and significantly increase the chance of experiencing a blunder. A disciplined approach will help you get rich, in part, because you avoid these blunders. But you will get rich slowly.


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