Some highlights from this very good book by Vanguard founder, John C. Bogle:
(1) There are advantages to using financial planners and it is not investment selection. We provide peace of mind, can match risk with return (what so many individuals don't consider) and, most importantly, may help you stay the course (though some - not me - planners abandoned this during this crisis and let their clients forget their own strategy).
(2) The fund selection of institutional funds versus retail funds is of little consequence compared to index funds. The fees are less for institutional mutual funds but buying indexed funds eliminates this cost advantage. Stop trying to outperform the markets for all of your portfolio.
(3) Remember that any new paradigm of investing (and there are lots now after this market crisis) is always based on the past. If any strategy always exceeds the average return over the long-run, then all that means is that this particular strategy was consistently under-priced by the market during the period selected. Guess what? The question then should be not when to invest in this new idea but why was this strategy under-priced and why would anyone think that this under-priced situation would continue into the future?
Please read that again because this is a very important point.
(4) Wall Street is in the business to make commissions and the way to do that is to give the customers what they want. (This is why so many new ETF's are hitting the market in the alternative scene - long/short; bear 2x and 3x DAILY returns; commodities; single-country, etc.). These new funds take many months to come to market and by the time they do arrive, that methodology may already be old news and many times ineffective.
(5) John Bogle quotes Clifford Asness (of AQR Capital Management) with some simple, but not easy, advice for good investing (there happen to be 9, which I like for 9SimpleSteps):
DIVERSIFY - Keep invested in all asset categories
LOW COSTS - Index and low-expense ratios
REBALANCE (or REDIRECT) - If working, change your contributions not your existing balances
SPEND LESS - Less than you make
SAVE MORE - Calculate what you need in retirement (get help from a professional planner)
ASSUME LOWER RETURNS - Forget 10-12% average annual returns, be conservative
FREE LUNCH DOES NOT EXIST - If it is too good to be true, then it is false
STOP WATCHING THE MARKET NEWS - Forget the hype, no one knows tomorrow
WORK LESS ON INVESTING - Once your allocation is set, few things should side-track you, and you do not need an advisor to take 1-2% of your return year in and year out.
This book is an easy read and quite helpful to remind you that what you can control (risks and costs) are much more important than chasing returns.
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.