Are You A Better Investor (Part 3)

This Post is continued from Part 2.

Three rules to invest by
So how do you put all the innovations of the past 35 years to the best use for you, not Wall Street? Follow these rules:

(1) If there's a cheap way and an expensive way to solve an investing
problem, stick with the cheap one.
The typical hedge fund gouges clients but produces mediocre returns. As for mutual funds, a recent study found that each 1 percent increase in annual expenses reduces performance by 1.6 percent; managers may be taking on more risk to overcome the drag of higher costs.
(aC: Some studies have shown that an actively managed stock portfolio is not able to beat the after cost net profits of a randonly picked stock portfolio that is passively managed. This means that you don't get anything in return for paying more)

(2) High returns and low risks don't come in the same package.
As Milton Friedman said, "There's no such thing as a free lunch." Just this summer, bank-loan and long-short funds became the latest "low risk, high return" products to flame out.
(aC: Maybe to make this more complete, it should be mentioned that High Returns and High Risks dont necessarily come in the same package either)

(3)If you are presented with too many choices, you'll end up afraid to choose at all.
Psychologists have shown that having to pick among dozens of options not only makes it much harder for us to make up our minds, but it also fills us with regret. No matter what we choose, we worry that another choice must have been better. So don't bother scouring among thousands of mutual funds and packing your 401(k) and other accounts with 78 of them. Instead, own a handful of low-cost, diversified index funds, add to them every month and do nothing else.
(aC: How true this is; If we are unable to filter the barrage of information that bombards us everyday, we will end up being paralysed by the wealth of information that the Internet and Media has brought us in today's world. I think one way to filter choices is to know clearly what you want in the first place, only after that when you presented with choices/options, you know which is the best/right choice. If you do not know what you want in the first place, you can be overwhelmed by the sheer amount of information)

The bottom line
Despite Wall Street's unrelenting efforts to complicate it, investing can be simple. But it isn't easy. In 2007 as in 1972, building wealth is very much like losing weight. Eat less, exercise more: That's simple! But it's not easy, because the world is teeming with chocolate cake and Cheetos.

Likewise, buy a diversified basket of index funds and do nothing: That's simple! But it's not easy because the world is full of TV touts, cold-calling brokers and (temporarily) hot funds. Realize that what's good about the difference between 1972 and 2007 is also what's bad. Lower cost is great if you trade rarely and wisely, but
not if it tempts you into buying and selling constantly. More choice is great if you add a few selected good things to your portfolio in moderation, but not if you end up with an unplanned jumble of investments. More convenience is great if you use it to make your life easier, but not if you take time away from family and friends to update your stock portfolio.

Lower cost, more choice and greater convenience are not means to an end, they are the end. Use them to achieve some other result, and you will fritter away the advantages the past 35 years have brought. You might as well be back in 1972, wearing plaid bell-bottoms and driving a Dodge Dart.