Two recommendations for reading: A Random Walk Down Wall Street (mentioned in another post, long, detailed, and entertaining), and The Coffeehouse Investor (sho

Two recommendations for reading: A Random Walk Down Wall Street (mentioned in another post, long, detailed, and entertaining), and The Coffeehouse Investor (short and funny). Both lay out the principles behind the theory of efficient markets, and make a great case for it. In a nutshell: buy the cheapest unmanaged index funds you can find. Come up with an allocation you're comfortable with (e.g., 50% large cap, 20% mid-cap, 20% small-cap, 10% international equity). Reallocate once a year so that your investments still follow the same rough percentages; that way you won't have more risk exposure to any particular asset class just because it happened to have done well or poorly in any given year. That's it. You will not outperform the market by picking your own investments or playing hedging games with derivatives, and, over the medium-to-long term, neither will any fund manager. Since you're in this for the long term, have fun in life and don't bother checking your balances except when you get your quarterly statements.