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In case you forgot to mark your calendar, April is Financial Literacy Month, that time of year when you're supposed to assess how much (or how little) you know about money and finances. If you want to gauge your financial acumen, there are all sorts of tests out there to help you do so, ranging from this six-question Financial Literacy quiz from FINRA to the National Financial Education Council's 30-question National Financial Capability Test.

Sure, having a grasp of how compound interest and inflation work and knowing how lenders calculate loan payments and make credit decisions can help you make sounder choices with your money. But I'd argue that understanding these five big-picture principles is even more crucial to reaching financial goals like having enough money for retirement.

1. Saving is a surer way to wealth than investing. Given all the attention the financial press devotes to tracking the stock market's ups and downs, you can easily come away with the impression that savvy investing is the single most important factor in building financial security and wealth. It's not. Investing is important, but all the investing skill in the world doesn't amount to much unless you regularly set aside savings that you can invest.

That said, it's certainly true that earning a higher rate of return on your savings will lead to a larger account balance down the road. But it's also the case that the higher the returns you shoot for, the more volatile your portfolio will be. And as Vanguard senior investment strategist Don Bennyhof explained in this blog post about the interplay between saving and investing last year, higher volatility can sometimes leave you with less wealth than if you'd taken a more moderate approach.

Fact is, as a practical matter you have much more control over the amount of money you can save than on the returns your portfolio earns. So while saving and investing are both required for building wealth, saving is the more reliable of the two. Or to look at it another way, the more you save, the less you'll have to rely on uncertain investment returns for your financial security

2. Higher returns always involve higher risks. When the financial markets aren't delivering the gains we'd like, there's a natural temptation to start hunting for investments that can do better. And, no surprise, there's always a supply of advisers and investment salespeople more than willing to cater to that demand, often by recommending investments that purport to ofter loftier returns without incurring extra risk. But this sort of more-gain-without-the-pain nirvana is a fantasy.

If you doubt that, just think back to 2007 when investors yearning for higher yields than what money-market funds and savings accounts were offering poured money into supposedly low-risk alternatives like bank-loan funds and ultra-short-term bond funds. Then the financial crisis hit, leaving some investors with losses of nearly 10% in the case of ultra-short-term bond funds and upwards of 30% in bank-loan funds. It turned out that many of those seemingly safe funds held riskier debt that dropped sharply in price as investors rushed into safer holdings.

Investors who buy dividend stocks because they see them as a higher-returning substitute for low-yielding bonds may also be vulnerable. From its peak in mid-2007 to its trough in early 2009, the price of the popular iShares Select Dividend ETF dropped roughly 65%. That was even more than the 55% decline in the broad stock market, largely because financial stocks, many of which pay dividends, got whacked so hard during the financial crisis.

So any time you're tempted to stretch for a higher return or fatter yield, remember: The investing world offers no free lunches. One way or another, higher returns alway come with greater risk, even if that risk isn't always apparent.

3. Simple is better than complex. The message investors get from many financial services firms is that managing your financial affairs is complicated. To succeed, they suggest, you must constantly scan the markets for alluring new investment opportunities and stand ready to reshuffle your investment lineup whenever a new piece of economic data comes in or the Federal Reserve makes any comment about interest rates. Problem is, the more complicated your investing strategy is, the harder it is to manage your portfolio and the more things that can go wrong with it.

Which is why a streamlined approach has a greater chance of success. So rather than trying to shoehorn into your portfolio every new arcane mutual fund or exotic ETF some financial firm's marketing department dreams up, you're better off investing in a relatively simple blend of a few low-cost index funds that track the broad stock and bond markets. Aside from periodic rebalancing, you should stick with that mix of funds no matter what's going on in the market. (For advice on coming up with a stocks-bonds mix that makes sense given your financial goals and how much risk you're comfortable taking, you can check out Vanguard's 11-question risk tolerance-asset allocation questionnaire, which you can find along with other useful tools and resources in RealDealRetirement's Retirement Investing section.)

Keeping it simple applies to other investments as well. For example, if you're looking for guaranteed income in retirement, you could try wading through the multitudinous mind-numbing provisions of fixed index or variable annuities. Or you could go with an immediate or longevity annuity, both of which generate reliable lifetime income in a (for annuities, at least) straightforward way. The point, though, is that the more unnecessary complications you can avoid, the fewer unforeseen glitches you'll have to deal with and the easier it will be for you to manage and monitor your portfolio.

4. Overconfidence is your worst enemy. Often it's not knowing too little that leads us to bad financial decisions. The problem is that we don't know as much as we think we know. We're overconfident. This tendency toward cockiness can manifest itself in many ways: trading frequently because we think we know which stocks are ready to sizzle or fizzle; investing a bigger percentage of our savings in equities after a big market run-up because we're convinced stocks will continue their winning ways; abandoning bonds when interest rates are low because we're certain rates have nowhere to go but up; assuming we're on course for a secure retirement when a little number crunching would show we're actually falling short.

It's impossible to eradicate all vestiges of this trait from ourselves; it's too ingrained in our make-up. But there are ways you may be able to avoid falling into the overconfidence trap. Before making a significant financial decision like rejiggering your asset allocation or choosing between a traditional or Roth IRA, make a list of the pros and cons of each choice and quantify what you stand to gain if things go as you expect and what you might lose if they don't.

Similarly, any time you're tempted to make a move—say, get out of stocks because you think a crash is imminent or buy gold because you think inflation will send gold prices soaring—write it down even if you don't follow through. You can then go back later and see whether your confidence in your predictive abilities is warranted. If nothing else, such a practice will prevent you from engaging in the all-too-human habit of remembering clearly all the predictions we made that turned out to be true while conveniently forgetting the many that didn't pan out.

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5. At the end of the day, the onus is on you to make good financial decisions. At some point, most or all of us rely on some source outside ourselves for financial guidance, whether it's a financial adviser, a friend or relative whose opinion we value or a publication or website we trust. And that's fine; a second opinion or a sounding board can be helpful. But just because a co-worker raves about a terrific mutual fund in your 401(k) plan doesn't necessarily mean you should invest in it. Nor should you buy any investment solely on the say-so of any publication or website. You've got to follow up with your own due diligence.

Similarly, if you decide to work with a financial pro, it's important that you vet the adviser, get written disclosure about all the fees you'll pay and discuss how the adviser will handle potential conflicts of interest. And after doing that, you should also have the adviser thoroughly explain his recommendations, so you understand both the upsides and downsides of his advice and can decide whether you're comfortable with his strategy. Otherwise, you're not accepting the responsibility for your financial decisions, you're abdicating it.

Walter Updegrave is the editor of If you have a question on retirement or investing that you would like Walter to answer online, send it to him at You can tweet Walter at @RealDealRetire.