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Over the very narrow time increment, the observation will reveal close to nothing. Yet the dentist's heart will not tell him that. Being emotional, he feels a pang with every loss, as it shows in red on his screen. He feels some pleasure when the performance is positive, but not in equivalent amount as the pain experienced when the performance is negative. At the end of every day the dentist will be emotionally drained. A minute-by-minute examination of his performance means that each day (assuming eight hours per day) he will have 241 pleasurable minutes against 239 unpleasurable ones. These amount to 60,688 and 60,271, respectively, per year. Now realize that if the unpleasurable minute is worse in reverse pleasure than the pleasurable minute is in pleasure terms, then the dentist incurs a large deficit when examining his performance at a high frequency.

Lifecycle funds are simple funds that automatically diversify your investments for you based on age. Instead of having to rebalance stocks and bonds, lifecycle funds do it for you. If more Americans owned lifecycle funds, for example, far fewer retirees would have seen precipitous drops in their retirement accounts, because the lifecycle funds would have automatically changed to a more conservative asset allocation as they approached their golden years.

These allocations are just general rules of thumb. Some people prefer to have 100 percent in stocks until they're in their thirties or forties. Others are more conservative and want some money in bonds. But the big takeaway here is that, if we're in our twenties and thirties, we can afford to be aggressive about investing in stocks and stock funds--even if they drop temporarily--because time is on our side.

Asset allocation is your plan for investing, the way you organize the investments in your portfolio between stocks, bonds, and cash. In other words, by diversifying your investments across different asset classes (like stocks and bonds, or, better yet, stock funds and bond funds), you could control the risk in your portfolio--and therefore control how much money, on average, you'd lose due to volatility. It turns out that the amounts you buy--whether it's 100 percent stocks or 90 percent stocks and 10 percent bonds--make a profound difference on your returns.

The economist Hyman Minsky sees the cycles of risk taking in the economy as following a pattern: stability and absence of crises encourage risk taking, complacency, and lowered awareness of the possibility of problems. Then a crisis occurs, resulting in people being shell-shocked and scared of investing their resources.

I love to laugh at people when they talk about investing. People think that investing means "buying stocks," so they throw around fancy terms like hedge funds, derivatives, and call options. Sadly, they actually think you need this level of complexity to get rich because they see people talking about this stuff on TV each day. Guess what? For individual investors like you and me, these options are completely irrelevant. It sounds sexy, but when individual investors talk about complicated concepts like this, it's like two elementary school tennis players arguing about the string tension of their racquets. Sure, it might matter a little, but they'd be much better tennis players if they just went outside and hit some balls for a few hours each day.

LOWER EXPENSES. As I discussed in Chapter 6, nothing kills your investment performance more than expensive funds that invisibly drain your returns. Investing in them is especially ridiculous when you can earn better returns with lower fees. Why would you pay for the privilege of losing your money? With Automatic Investing, you invest in low-cost funds--which replace worthless, expensive portfolio managers--and you save tens of thousands of pounds in trading fees, taxes, and overall investment expenses, outperforming most investors.

"I believe that 98 or 99 percent--maybe more than 99 percent--of people who invest should extensively diversify and not trade. That leads them to [a tracker] fund with very low costs." --WARREN BUFFETT,

It is important to diversify within stocks, but it's even more important to allocate across the different asset classes--like stocks and bonds. Investing in only one category is dangerous over the long term. This is where the all-important concept of asset allocation comes into play. Remember it like this: Diversification is D for going deep into a category (for example, buying different types of stocks: large-cap, small-cap, international, and so on), and asset allocation is A for going across all categories (for example, stocks and bonds).

Invest as much as possible into tax-deferred accounts like your pension and ISA. Because retirement accounts are tax advantaged, you'll enjoy significant rewards. Your pension money won't be taxed until you withdraw it many years down the line, and your ISA earnings won't be taxed at all.

The first thing you want to do when picking tracker funds is to minimize fees. Look for the management fees ("expense ratios") to be low, around 0.2 percent, and you'll be fine. Really, anything lower than 0.75 percent is okay. Most of the tracker funds at Vanguard, Fidelity, and HSBC have relatively low costs. Remember: Expense ratios are one of the few things you can control, and higher fees cost you dearly--and they just put money in Wall Street's pocket.

Making a handful of good uncorrelated bets that are balanced and leveraged well is the surest way of having a lot of upside without being exposed to unacceptable downside.

I get e-mails from people wondering what I think about oil, currency markets, or Google every single day. Who knows about those things? I certainly don't, especially in the short term. Unfortunately, the fact is that nobody can predict where the market is going. Still, the talking heads on TV make grandiose predictions every day, and whether they're right or wrong, they're never held accountable for them.

The only long-term solution is to invest regularly, putting as much money as possible into low-cost, diversified funds, even in an economic downturn.

Rung 3: Open up a stocks and shares ISA account and contribute as much money as possible to it. ISA limits are increasing to PS10,200 a year--including up to PS5,100 in a cash ISA.

Simple, long-term investing works.

the little-known but true fact is that the major predictor of your portfolio's volatility is not due, as most people think, to the individual stocks you pick, but instead your mix of stocks and bonds. In 1986, researchers Gary Brinson, Randolph Hood, and Gilbert Beebower published a study in the Financial Analysts Journal that rocked the financial world. They demonstrated that more than 90 percent of your portfolio's volatility is a result of your asset allocation.

There are many different investments besides stocks, bonds, and tracker and lifecycle funds. You can buy precious metals, real estate, or even art; just don't expect very good returns. And despite all my dire warnings, you can also buy a couple of stocks you really like.

if you were to invest in stocks, you'd want to diversify, buying all different types of stocks or stock funds to have a balanced portfolio.

INVESTING IS THE SINGLE MOST EFFECTIVE WAY TO GET RICH By opening an investment account, you give yourself access to the biggest moneymaking vehicle in the history of the world: the stock market.

When the Slowlane is deconstructed, you find two variables: 1) The "primary income source" (defines how income is earned) 2) The "wealth accelerator" (defines how wealth is accumulated) The Slowlaner's primary income source comes from "a job," while the wealth acceleration vehicle comes from "market investments" like 401(k)s and indexed-funds. Put it together and you arrive at the Slowlaner's wealth equation: WEALTH = (Job) + (Market Investments) The primary income source The wealth accelerator Under this plan, income from a job funds both lifestyle and market investments.