I watched an interview of author Jason Zweig and he spoke on the importance of knowing why you own something.
I own index funds. They are the best way to own a diversified portion of the stock market. They also are cheap which means you keep more of your money invested.
By owning index funds, I am putting my faith in the United States stock market which means I am putting my faith in the United States economy. Investment wise there isn’t a surer bet.
Many knowledgeable investors recommend further diversifying into international stocks. For some time, I followed their recommendation, but continued poor performance and immature foreign accounting pushed me into only owning domestic stocks currently. JL Collins also speaks and writes how by owning domestic companies gives you international exposure because the companies sell their products internationally.
Jason Zweig’s also explained that if you own individual stocks then you need to know the business. This is different than what the stock price has done. He recommended reading the last 3 years of annual reports as well as the last 4 quarterly reports. This is because you are speculating when you only track the stock price and where the stock ultimately lands is dependent on the underlying business fundamentals.
Knowing what you own is useful for many reasons, but most importantly it stops you from selling when the price drops dramatically which is a real killer to wealth building.
Millionaire Librarian 