Smart folks sometimes make silly mistakes when it comes to investing. Part of the reason for this, I guess, is the fact that a lot of people do not have the time to learn what they need to know to make excellent decisions.

Don't Forget to Diversify

The average stock market return is 10 percent or so, but to earn 10 percent you have to own a broad range of stocks. In other words, you need to diversify.

To make money on the stock market, you need around 15 to 20 stocks in a number of industries. (I did not just make up these figures; the 15 to 20 range comes from a statistical calculation that many upper-division and graduate finance textbooks explain.)

Be Patient

It's important for investors to have patience. There will be many bad years. Many times, one awful year is followed by another bad year. But over time, the good years outnumber the bad.

They compensate for the awful years too. Patient investors who remain in the market in both the good and bad years virtually always do better than people who try to follow every single fad or buy last year's hot stock.

Invest Regularly

You may already know about dollar-average investing. As opposed to purchasing a set number of shares at regular intervals, you purchase a regular dollar amount, such as $100. When the share price is $10, you buy ten shares. If the share price is $20, you acquire five shares. If the share price is $5, you purchase twenty shares.

To make dollar-average investments work with individual stocks, you need to dollar-average each stock. In other words, if you are buying stock in IBM, you need to purchase a set dollar amount of IBM stock every single month, every quarter, or whatever.

Don't Ignore Investment Expenses

Investment expenses can add up rather quickly. Small differences in expense ratios, costly investment newsletter subscriptions, online financial services (such as Quicken Quotes!), and income taxes can easily subtract hundreds of thousands of dollars from your net worth over an entire lifetime of investing.

Investment expenses may add up to really big numbers when you understand that you could have invested the funds and earned interest and dividends for years.

Don't Get Greedy

People make all sorts of foolish investment choices when they get greedy and pursue returns that are out of line with the average annual returns of the stock market.

If somebody tells you that he has a sure-thing investment or investment technique that pays, say, 15 percent, do not believe it. And, for Pete's sake, do not buy investments on a shell company or investment advice from that individual.

Don't Get Fancy

For years now, I've made the better part of my living by analyzing complicated investments. Nevertheless, I think that it makes most sense for investors to stick with simple investments: mutual funds, individual shares, government and corporate bonds, etc.

To add to these basic investments, ask an investment professional about merge companies and financial mergers.

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