How Much Stock Can You Put in These Truisms?

A closer look at these rules of thumb reveals important nuances.

- KIM CLARK

WITH THOUSANDS OF investments and zillions of competing strategies vying for investors' allegiance, it can be tempting to fall back on a few simple rules of thumb. Such often-repeated and seemingly time-proven investing axioms are valuable because they "give people a basis to get started investing" and on a path to improved long-term financial security, says Kathy Carey, who is director of private wealth management research for investment firm Baird.

But just like simplistic medical advice, these bromides don't help all people in all situations. Chicken soup has many curative properties, but isn't a fix for a broken leg, after all. And in many cases, following some investing prescriptions without adjusting for your own circumstances could end up damaging your returns, Carey says.

To help you personalize the maxims and maximize your returns, consider the nuances of some oft-quoted adages.

DOLLAR-COST AVERAGE

More than 70 years ago, investing great Benjamin Graham recommended that investors make regular contributions to their investment funds so that the overall price they ended up paying for each holding would be the average of its price over many ups and downs and not the (possibly high) price on any one day.

Research has since found that those with a lump sum to invest would, on average, earn higher returns over the long haul by dumping it in all at once. A 2019 study by research firm Morningstar found that going back to 1926, lump-summers would have beaten dollar-cost averages over 10-year periods in more than 90% of the cases. The main exception: investors plonking down their lump sum at the start of a bear market.