The 5 Golden Rules for Investing

Let's talk about the stock market

Stock markets keep going up. It seems unbelievable given what’s going on in the world. Despite wars, chaos in US politics, and a disruption in the transportation of oil, to name just a few headlines, investors keep piling into stocks. The Canadian market is up 8% so far this year, the US is up almost 3%, European markets have risen by 5%, and the world overall is up 4%.   

Sure, we can come up with all kinds of reasons why stocks are still doing well, but that’s a pointless exercise. The truth is that stock markets rarely act the way most people expect them to. When people claim that they know where the stock market is going, you should always say (out loud to those around you), “You have no idea.” News articles, tv commentators, stock analysts, portfolio managers – they are paid to have an opinion but that doesn’t mean those opinions have any merit. (Why did God create stock market analysts? To make weather forecasters look good.) I find it audacious when people make big statements about things like the direction of stocks. I mean, no one is stopping them from saying it and in fact, it seems like the general public loves it. People are looking for guidance and direction, even if it’s baseless. But how dare you give an “expert” opinion on a topic that is mysterious and baffling to most people, and that could have a serious impact on someone’s financial health, when you know, as well as I do, that you are guessing? It’s no different than touting an unproven remedy for a serious illness or disease.

I was a stock analyst for 15 years and I’ve been a do-it-yourself investor since I was 24 (yes, that’s 27 years). I have heard thousands of “expert” opinions on the direction of the economy, interest rates, oil prices, gold, copper, what the stock market will do this year, and the prospects for individual companies. None of it was any help because there was a 50/50 chance that this person was going to be right.

If anyone could make predictions accurately on a consistent basis, they would not be sharing them with you. They’d be busy getting rich. And this is a big “if”. It’s rare for anyone to be right consistently over time. Just sayin’.

So what’s the problem here?

The problem is that making guesses (and guesses they are) about the near-term performance of the stock market means investors make poor choices, lower their returns, and cause themselves undue anxiety.

Case in point: over the past year and a half, the number of clients who said they are concerned that the market is at a high, and that they should keep their money in cash until it cools off, has shot up. And guess what? A year and a half later, they are still concerned.

Remember this blog post? I wrote this in November of 2024 when it seemed – based on the incredible run in stocks – that a crash was imminent. Uh, not so much. Since then, the Canadian and US stock markets have been up 38% and 22%, respectively.

People who have been waiting for the correction have missed out on gains and worse, have been agonizing over it.

All of this to say that you should never think about the direction of stocks. Stocks go up over long time periods and that’s all you need to know.

Here are my golden rules of investing that will allow you to make good decisions without the stress.

1. Never make an investment decision based on what markets are doing.

Choosing your asset allocation – your mix of stocks, bonds, and cash – is never a function of whether the market is going up or down. Deciding on how much to invest in the US versus other markets is not a function of what technology stocks are doing, or even the state of the economy. Your asset allocation is based on your needs: how long you will be investing for, what rate of return you need to get to reach your goals, and how you feel about market volatility. Diversify across geographies.

Make the asset allocation decision, write it down, and implement it. That’s it.

2. Invest when you have the money and sell when you need it.

Market timing is incredibly frustrating because when it comes to mind games, the stock market has human beings beat. You think your ex played mind games with you? That’s nothing compared to the S&P 500. 

If you have money to invest but are waiting for the “right time”, that time might never come. When markets are rising, you worry about investing at the top. When markets are declining, you feel nervous about catching a falling knife. Markets get a bump? Now you’ll wait until tomorrow when they go back down. Seriously, it’s not good for you. Don’t do it. Just invest when you have cash, and sell when you need it back.

3. Geographic diversification never goes out of style

The US stock market had been on an absolute tear the past few years. The excitement around technology, and AI specifically, has made the US market the place to be. It’s been tempting to question whether investing in global stocks is even necessary. But all markets, even the mighty US, falter and being diversified protects your returns.

In fact, in 2025, the S&P 500 in the US was up 16%, while Canadian stocks rose 29%. The Europe, Asia and Far East (EAFE) index rose 31%. And importantly, US returns have been reliant on the Magnificent Seven: in 2023, these seven stocks accounted for 63% per cent of the rise in the S&P 500. In 2024, they accounted for 55% of the increase in the market. That’s all great, but when these stocks start to underperform, you will be glad you invested in a bunch of other countries, sectors and companies.

4. Index investing always wins

Active investors – those who pick stocks, favour certain sectors and countries, and time the market – provide all kinds of reasons why index investing is inferior to their expertise. The cold, hard truth is that index investing beats active investing. Over the last ten years, 98% of actively-managed Canadian mutual funds did not do as well as the overall Canadian market. 98%! True fact. In the US, the figure is 90%. And it’s no better across the pond. In Europe, the figure is 97%, and in Australia it’s 87%.

If you are investing for yourself, don’t pick stocks. Just buy index-tracking ETFs. If you have a financial advisor, chances are you are not an index investor, and there probably isn’t much you can do about that. That’s ok – as long as your returns are something close to the overall market, you’ll be ok.

5. Keep it simple

Complexity is a killer for investment returns. Owning a mish-mash of specialty ETFs, small-cap stocks, cryptocurrency, private credit, junior mining companies, and start-ups will lead to worse returns than an indexed ETF. Not only that, it’s hard to keep on top of it all, and it can command too much of your time and brainpower.

(And please don’t become a day trader. Yes, people are still trying this.)

Follow a simple investment plan that matches your asset allocation. Own three to five index-tracking ETFs, or use an all-in-one ETF that does the work of choosing the underlying ETFs for you. And that’s it. Move on with your life and check in on your portfolio at the end of the year.