Janet Novack, Forbes Staff
I write from D.C. about tax and retirement policy and planning.
From the Forbes 2014 Investment Guide, wealth building tips to last you through the year.
Sir John Templeton: “Invest at the point of maximum pessimism.”
Don’t mistake a low P/E ratio for a value stock.
Benjamin Graham: “Patience is the fund investor’s single most powerful ally.”
Recommended by Forbes
Let your attorneys ride shotgun, but not in the driver’s seat.
Remember Enron; reduce your employer’s company stock in your 401(k).
Warren Buffett: “Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1!”
Fund a Roth IRA if you’re eligible; your money grows tax free for retirement, and in an emergency you can take your contribution back without penalty.
Barry Sternlicht: Pay attention to the big themes, because they are what will help you earn ten times your money.
Back a friend or relative’s startup with a convertible loan, so you share in the upside.
Use commodities as a hedge against inflation.
Raise the deductibles on your auto and home insurance.
Form family limited partnerships to transfer assets at a tax discount.
Beat death taxes in 20 states by making big gifts while you’re alive.
For simple federal tax-free wealth transfer, make $14,000 annual gifts to children and grandchildren. It won’t cut into your $5.25 million lifetime exemption from gift and estate taxes.
Get tax advice before settling a lawsuit.
Read Reminiscences of a Stock Operator by Edwin LeFèvre.
To keep peace with both relatives and the IRS, document all family loans.
Peter Lynch: “Never invest in any idea you can’t illustrate with a crayon.”
View collecting as a hobby first and investment second; psychic returns can make up for a lower average return than in stocks.
Add a personal items floater to your homeowner’s insurance to cover collectibles.
When the bear charges, stand your ground.
For protection from inflation and currency devaluation, buy the “gold you can eat”—farmland.
Know your risk tolerance. Pick an asset allocation that lets you sleep at night, so you won’t panic and sell stocks at the bottom.
Don’t keep too much in cash equivalents—over time, this “safe” investment barely keeps up with inflation.
After setting an asset allocation, rebalance yearly; it forces you to take profits when stocks have surged and to buy more shares when they’re cheap.
Benjamin Graham: “Adopt simple rules and stick to them.”
Buy Bitcoin as a speculation or political statement, not a hedge.
The Forbes eBook On Bitcoin
Secret Money: Living on Bitcoin in the Real World explores the cryptocurrency’s rise through the lens of trying to survive a week on the digital coin.
Be a tax-smart investor. Hold taxable bonds in a 401(k) or IRA. Put individual stocks in taxable accounts so you can sell losers to harvest tax losses.
Pay attention to the IRS’ wash sale rule when harvesting capital losses.
Don’t invest in a hedge fund unless its audited results are reported in compliance with Global Investment Performance Standards.
Build an emergency fund outside your 401(k).
For the biggest tax break when donating collectibles to charity, make sure they’ll be displayed and not sold.
Put alternative investments like real estate (but never collectibles) in your IRA.
Burton Malkiel: “All index funds are not created equal. Some have unconscionably high expenses.”
Keep an eye on—but don’t obsess over—mutual fund fees and expenses.
Even committed indexers should use actively managed funds to buy municipal and high-yield bonds and value stocks.
Yield is nice, but total return is the metric that matters.
Gold is overrated as an inflation hedge—historically, its price moves are unrelated to inflation.
For inflation protection, buy floating-rate corporate bonds.
Don’t let the mood swings of Mr. Market coax you into speculating.
Beware affinity fraud; find God, not hot investments, at your church, synagogue or mosque.
Sir John Templeton: “The four most dangerous words in investing are: ‘this time it’s different.’”
Don’t put more than you can afford to lose into a crowdfunded deal; startups are always risky, and the new JOBS Act reduces both paperwork and investor protection.
Don’t underrate the importance of liquidity.
Use Quicken or a Web service to track all your finances and see your big picture.
Use different passwords for each of your online financial accounts; add optional security questions whose answers can’t be found in your Facebook or LinkedIn profiles.
Write down your passwords and hide them; tell one person where they are.
Don’t fight demographics—allocate a portion of your portfolio to health care and biotech stocks.
Diversify globally to boost your portfolio’s risk-adjusted performance.
Benjamin Graham: “Speculation is neither illegal, immoral nor (for most people) fattening to