Greg McKeown, author of the book Essentialism: The Disciplined Pursuit of Less conducted a session at a NAPFA conference in San Diego last spring and the one thing that stuck in my head was the advice that if the answer to the question isn’t “Hell, yes!” then the answer should be “No”.
While Greg was speaking of time management, the concept translates well to your investment selection process as well.
Now, I believe a broadly diversified portfolio is necessary to long term success and that buying index funds to participate in the long term ups of the stock market is the most sound approach for most individual investors, I do realize that many want to add a little spice to the mix. So if you are someone who likes to select some individual stocks for your portfolio, then repeat that mantra every time you are considering a purchase. If you can be excited and say “Hell, yes!” then go ahead, but if it’s more of a “Meh” then just add that money to your stock index fund instead.