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Are Stocks Dangerous?

Kalinda (my wife) recently started a cooking blog. What this means for me–aside from an abundance of delicious, homemade meals–is that I end up dicing/chopping vegetables most nights. A recent close call with a chef knife got me thinking.

Asian Orange Tofu Stir Fry

A few observations about chef knives:

  • If used improperly, they’re dangerous.
  • If used for the wrong job, they’re dangerous.
  • When used correctly, and for the right purpose, they get the job done in a (fairly) safe manner.

Stocks are rather like a sharp chef knife:

  • If used improperly (buying and selling with great frequency, or owning a portfolio that’s not sufficiently diversified), they’re dangerous.
  • If used for the wrong job (short-term savings, for instance) they’re dangerous.
  • When used correctly, they get the job done in a fairly safe way.

How to use stocks properly and safely?

  1. Own a diversified portfolio via a low-cost fund.
  2. Hold them forever (or as close to forever as you can manage).

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