The final principle of investment wisdom to be discussed is - hold for the long term.
Yes - You can't hope to jump in and out of the market based on guesses as to direction with any success. You would have to be right about market moves about 70% of the time just to equal the return on a long term holding strategy for the same time period.
But - Be sure that you have made the appropriate time frame decision for your investment goals. If you are saving for a furniture purchase, a home downpayment, or any other short term goal with a definite dollar amount in mind you should NOT be in the stock market! Ever! No matter what hot stock tip your brother-in-law came up with. This money should be in a money market fund, cash, savings, CDs, perhaps a short term high quality bond fund.
Stock market investments should be made with a MINIMUM five year commitment; and given most recent market behavior, perhaps, ten years. So, your 401k, your college savings (for younger children) and any other investments with this longer time horizon can be put out in the market, because these longer time periods smooth out the short term risk.
And, even most long term portfolios also contain some cash or bonds because of the stabilizing effect on returns over the long time period, providing a somewhat smoother ride.
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