Strange to say, we know a great deal about what not to do when it comes to investing, but only a few positive things about what to do. However, these few things are extremely powerful.
Here's the list:
Invest passively and consistently, with an emphasis on the tried and true.
Minimize expenses and taxes.
Buy and hold.
Whoever first came up with this deserves a Nobel Prize. Let's take each item one by one, shall we?
The simpler your approach to investing, the better. You want to own simple assets that anyone can understand: shares of businesses and debt that has a high probability of being paid back with interest. Extremely complicated financial products can be devised, but they are difficult to analyze and come with high fees. They may be suitable for somebody, but don't assume that person is you, even if someone seems very eager to sell you one.
In 1953, a grad student named Harry Markowitz came up with the idea that if you hold a bunch of different investments, you get the average of the returns from all the investments but at less than their average risk, because some will be up while others are down. This insight eventually won him a Nobel Prize. Diversification has been called the only free lunch in financial economics. By lowering your risk, it increases your returns, because your portfolio doesn't fall as much during bad times and doesn't have to regain as much lost ground to get ahead ...