All about investment

It's not hard to turn thousands into millions if you'll only step back from the frenzy of the stock market and march to a different drummer. The first thing you have to observe is that most people lose money in the stock market, they don't make money. They lose money through commissions, buying on hunches, selling on emotions, and generally being 'hyperactive'.

Hyperactive investing is not how you get rich. You get rich by learning from the rocket scientists who study the financial markets and help create computer models for the billion dollar hedge funds. What do these PhD. 'quants' have to say?

There are just a few simple rules to follow to create true wealth the low-stress way. First, your returns actually do not depend on picking stocks. Your returns depend on allocating your assets the right way – over 90 percent of investment returns are determined by how investors allocate their wealth, versus picking stocks or timing the market. Asset allocation is how you divide your invetment portfolio among three types of investments – stocks, bonds and cash. For example, if you want maximum growth with no increase in risk, allocate 70% to stocks. 20% to bonds and 10% to cash.

Next, now that you've picked your asset allocation, open an account with a low-cost index fund family such as Fidelity, Vanguard or T Rowe. This will keep your costs to the bare minimum, and will avoid falling into the trap of having someone else manage your money in a hyperactive manner. Instead, your money will be in funds that are designed to mimic a major market index such as the S&P 500.

Now it's time to pick your specific investments. Don't get me wrong – you're not going to pick individual stocks. Instead, we're talking about how much of your stock dollars go into domestic funds versus international, or large cap versus small cap. Similarly, you have to decide which type of bond funds you'll pick.

Lastly, rebalance your allocation of funds once every year. Some of your investments will have grown faster than the others and it's time to sell a portion off to bring them back into the target percentage allocations you chose. This way you automatically sell a portion of your winner investments when they are high – capturing the returns and putting them into lower-priced asset categories – whose turn will come in time.

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