What are the golden rules for creating an invesment portfolio?

The number one rule is not relying on economic forecasts. The simple reason is they are usually wrong. The only people who get things right are what you might call the permanent bears or bulls. These are people who always have the same opinion no matter what is happening. They either think everything is terrific or the world is about to end. Like a broken clock which is accurate a couple of times a day, these people will occasionally get the call right. This will make them rich and famous but cause great wealth destruction to the investors who think they have found the magic secret. The best policy is to ignore market forecasts and plan accordingly.

Here are some great tips from Morgan Housel at the Motley Fool

I think everyone’s financial plan should follow a few golden rules:

  • Your portfolio should not rely on recessions not occurring.
  • Your portfolio should not rely on a recession occurring.
  • Your portfolio should not rely on a crash occurring anytime soon.
  • Your portfolio should not rely on a crash not occurring anytime soon.
  • You should not rely on stocks going up 10% a year for the next 50 years.
  • Your expenses for the next six months (at least) should not rely on remaining employed.
  • You should not rely on Social Security paying out as much as it does today.
  • You should not rely on inflation remaining low.
  • You should not assume the Fed printing money means hyperinflation is imminent.
  • You should not rely on making as much money for the rest of your career as you do today.
  • You should not rely on one person’s opinion.
  • You should rely on being wrong, and the future’s biggest news stories being stuff no one is talking about today.

This doesn’t mean you’re not taking risk. It just means that you can handle things that don’t go according to plan. Logically, you’ll never be able to do that completely. But everyone can improve their financial lives by trying to lengthen the distance between your forecast coming true and needing your forecasts to come true.