A list of Important Rules in Investment

Do not Invest in:

something you do not understand
anything that offers returns that seem too good to be true
A stock or other security based on a hot tip or nonpublic information
Collectibles or intangibles, unless you really understand what you are doing
Futures contracts, unless you are an expert in the area
Potential takeover candidates, unless you like the asset on its merits
The stock of IPOs in the immediate aftermarket (just after they have gone public)
The stocks of bankrupt firms (prefer their bonds)
The stocks of firms that engage in reverse splits
The stocks of firms whose managers are fighting with short sellers.

Do not Invest in the following types of (mutual, closed-end, hedge) funds:

Closed-end funds at their new issue price
Funds of funds
Load funds
Actively managed funds, unless you have a good reason to believe that the manager has superior ability
Limited partnership tax shelters

Do not rely upon:

Do not:

Let any single asset, especially the stock of your employer, account for more than 10 percent of your portfolio
Sell short, without hedging your positions
Write naked option, without the protection of a hedge
Let tax considerations override sound investment decisions
Hire a personal investment manager, unless you have a very large portfolio

Do invest in:

Index funds, especially those with low expense ratios
Interval funds, but only if you like the fund on its own merits
Takeover candidates, but only if you like the company on its own merits
Stocks with high dividend rates that qualify for the 15 percent tax rate, if they are otherwise attractive
Agencies rather than treasuries
Real estate by buying your own home, but only if can afford it and plan to live there for at least several years
No-load and closed-end funds that you like on their merits
The bonds of bankrupt companies, if your analysis indicated that they are undervalued

Do:

Have patience and allow the power of compound interests to work for you
Take an eclectic approach to investing
Construct your own homemade diversified fund of funds
Diversify internationally
Tender closed-end funds or other assets when you can do so above the market price (replace)
Take maximum advantage of tax shelters such as IRAs
Use options as a vehicle both to buy and sell securities and to manage tax losses
Use margin borrowing as a source of low-cost credit, but do so with care
Use limit orders to buy and sell securities
Take account of the impact of taxes on the returns that you earn; invest accordingly
Put off or reduce tax liabilities when you can do so advantageously by, for example, the use of versus purchase orders and options
Concentrate high-tax-liability investment income in retirement accounts and lower-tax-liability assets in your nonretirement account
Use an internet or discount broker to minimize trading costs
Obtain a full quote, including “size,” before you enter an order to buy or sell
Take tax losses before December selling pressure begins
Participate in dividend investment plans, but only if you want to own more of the stock