Judgment-based or rules-based investing?

This really comes down to active investing versus passive investing.

Judgment-based, active investing

It is a mathematical certainty that in each transaction, half of investors will be wrong. Active investing can take up the full day, every day. While it may delay cognitive decline, fewer than 5% of active investors can beat the market over the course of a market cycle (peak to trough to peak).

Rules-based, passive investing

It is a mathematical certainty that passive investors can equal the market minus very small transaction cost, small enough to ignore. Many passive investors spend less than 15 minutes a week on their portfolios. They outperform over 90% of active investors over the course of a market cycle.

Here are some rules:

  • Money which we will need within the next 5 years does not belong in the market.
  • We need an emergency fund to cover to six months’ worth of household expenses.
  • We need to adhere to our personal asset allocation regime.
  • The habits of highly effective investors (see below) are really rules.

Rules-based, passive investing can be called no-brainer investing.

We can regain lost money. We cannot regain lost time.

Maximum Efficiency with Minimum Effort is the Monday Morning Millionaire Program objective for members.

To review the habits of highly effective investors:

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Dr. Milan Somborac

The Monday Morning Millionaire Program supports do-it-yourself (DIY) investors which I have been for over 50 years. About my team and me