"Common Sense Investing" -- A gem

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"Common Sense Investing" -- A gem

Postby Taylor Larimore » Tue Sep 13, 2011 12:30 pm

Boglehead Rick Van Ness has written an easy-to-read book in the Boglehead tradition of helping others invest successfully.

"100% of the revenue from sales of this book will be applied towards promoting financial literacy through bit-sized videos, short books, the Bogleheads' wiki, and other educational projects."

"The Bogleheads have endearingly named themselves after John C. Bogle, the great champion of common sense investing. Join them online. You can find answers to common questions or books that are worth reading. You can always anonymously ask the Bogleheads discussion board--a group of friendly people that are amazingly generous with helpful feedback to people with genuine questions."

"For us, there is no better mentor than legendary mutual fund industry veteran, John C. Bogle."

"Start by tuning out all the TV shows and newsletters trying to sell you something."

"A good rule-of-thumb is that you'll need 25 times what you'll draw from your savings for 30 years of retirement."

"Invest money you'll need soon very conservatively, like in a money market fund or a bank CD--definately not in the stock market."

"A time-proven strategy for saving is to pay yourself first with that 15% automatically deposited."

"Have a plan. Follow the plan, and you'll be surprised how successful you can be."

"The benefits of starting to save and invest early are simply enormous."

"Sometimes your best investment strategy begins by paying off loans."

"Concentrating your portfolio in a few stocks maximizes your change of getting rich. Unfortunately, it also maximizes your chance of becoming poor." -- Wm. Bernstein quote

"If you are having trouble choosing what level of risk is right for you, I think a good starting place is the advice to own your age in bonds."

"Once the stocks and bonds decision is made, you can move on to the decision on what types of mutual funds you'll want to own."

"Correlations can change when viewed over different time-frames."

"Building an outstanding portfolio doesn't have to be complicated at all!"

"I believe that 98 or 99 percent of people who invest should extensively diversify and not trade. That leads them to an index fund with very low costs." -- Warren Buffett quote

"It is at least very difficult, if not impossible, to succeed at market timing over the long-run."

"For a recent 25-year period, John Bogle found that the vast majority of investors earned 5% less than the overall stock market return."

"Attempting to predict the future direction of the market is only the first of the two common timing mistakes. It's also incredibly tempting to invest in the most recent, top performing categories of stocks and bonds."

"John Bogle warns, 'Don't think you know more than the market. Nobody does.'"

"Simple random luck will make some people appear more brilliant than they really are."

"How about rebalancing every birthday: Is that market timing? No. It's an example of having a plan and sticking to it."

"Spend less time studying your investments and more time studying yourself. -- Jason Zweig quote"

"Market Return - Investor's Costs = Investor's Return."

"Over a period of 10 years, a mere 15% of the actively managed funds beat the market return."

"The grim irony of investing is that we investors as a group not only don't get what we pay for. We get precisely what we don't pay for."

"Unfortunately, some 401(k) plans do not offer any index funds at all. In that case, look for the largest, most diversified funds with the lowest fees."

"You generally want to hold bonds in a retirement account and stocks in a taxable account."

"Desired mutual fund attributes are low turnover, low cost, and widely diversified."

"Never underrate either the majesty of simplicity or its proven effectiveness as a long-term strategy for productive investing. Simplicity, indeed, is the master key to financial success." -- Jack Bogle quote

"Your most important decision is your stock/bond ratio. It is essential that you own both."

"Any good-quality low-cost bond fund works fine. The type of bonds is far less important than the amount of bonds."

"Stocks are a long-term investment. There will be many bumps in the road: wars, recessions, high inflation, and stuff we haven't even thought of."

"International allocation for stocks commonly ranges from 20-50% of total stock value."

"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth." -- Jack Bogle quote

"Successful investing involves doing just a few things right, and avoiding serious mistakes."

"Stay the course. Here's where it gets difficult for most of us."

"Stay the course means that once you've chosen your portfolio, only sell to rebalance and maintain your risk level. Never sell based on greed or fear."

"Within each category of mutual funds, expenses are the best predictor of future performance."

"In times of crisis a human instinct is: Don't just stand there! Do something!
The Boglehead principle is: Don't do something. Just stand there."

"For most everything in our lives, the usual advice is: Stay Informed.
The Boglehead principle is: Ignore the noise."

"The usual advice is: You get what you pay for.
The Boglehead principle is: We get to keep precisely what we don't pay for."

"For many things we do in life: There is a single best answer.
Bogleheads find this wisdom helpful: There are many roads to Dublin.

"Many of the books at the bookstore are meant to appeal to our bad instincts (greed and fear) and don't offer wise advice. I suggest you start with the books that are recommended by the Bogleheads."

"Find more simple portfolio ideas at the Bogleheads wiki: http://www.bogleheads.org/wiki/Lazy_Portfolios "

"Expected returns are not a guarantee."

"Investing is a long-term proposition so it is pointless to watch the daily flutter of the stock market."

"View rebalancing as a legitimate way to execute a buy low and sell high strategy--compared to emotion-based timing decisions."

"The fewer companies that you invest with, the simpler your life becomes when you need to choose funds, do your income taxes, rebalance, or transfer money."

" www.FinancingLife.org includes free short online videos."

"I love reading John Bogle because his writing is simple, clear, and eloquent. His logic is compelling. He truly is the champion of common sense investing."

The Common Sense Strategy--10 Simple Rules: Develop a plan; start saving now; own the appropriate amount of bonds; diversify; never time the market; use index funds; keep costs low; minimize taxes; keep it simple; stick to your plan.


Thank you Rick.

Amazon Link

More Investment Gems
Last edited by Taylor Larimore on Tue Sep 13, 2011 12:53 pm, edited 2 times in total.
"Simplicity is the master key to financial success." -- Jack Bogle
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Postby bob90245 » Tue Sep 13, 2011 12:52 pm

The word "on" doesn't appear in the book title:

http://www.amazon.com/Common-Sense-Inve ... 1466204516
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.
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Title correction

Postby Taylor Larimore » Tue Sep 13, 2011 12:54 pm

Hi Bob:

Thank you for the correction. I edited the title.
"Simplicity is the master key to financial success." -- Jack Bogle
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Wiki updates:

Postby Barry Barnitz » Wed Sep 14, 2011 5:13 am

Hi Taylor & Rick:

I have updated our wiki Gems page:

Wiki article link: Taylor Larimore's Investment Gems.

And I have taken a stab at creating a page for Rick in our Books and Authors and Bogleheads Authors category.

Wiki article link: Rick Van Ness.

regards,
Image | blb | December Birthday Celebration: Ludwig van Beethoven
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Postby foxfirev5 » Wed Sep 14, 2011 5:32 am

Thanks Taylor. This sums it up. A friend of mine who in the past has been prone to get rich quick schemes would benefit from this advice. He has turned over his retirement to his son the "financial genius". Early this year he took a few swipes at my Boglehead appoach. His son had put him into stocks at just the right time and things were going great. I couldn't resist putting a little bait out there and commented that the recent volatility in the market had my investments fluctuating quite a bit. He stated he hadn't looked at his account but his son assured him he is getting in and out at just the right time. He paused a moment and stated that his backup plan is to live in his son's basement! To each his own. I most definitely prefer the suggestions offered above.
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Postby fredflinstone » Wed Sep 14, 2011 5:54 am

I agree with most of the advice given but I respectfully disagree with a few items:

"It is at least very difficult, if not impossible, to succeed at market timing over the long-run."

Professor William Pfau's research on PE10-based timing suggests otherwise: http://mpra.ub.uni-muenchen.de/29448/1/ ... _29448.pdf

Even Bogle has advocated "tactical asset allocation" (in other words, market timing) at extreme valuations.

"How about rebalancing every birthday: Is that market timing? No. It's an example of having a plan and sticking to it."

I agree it is not market timing. However, it is not the optimal approach. Based on advice I've received from other Bogleheads, I think it makes more sense to rebalance whenever current allocations deviate from target allocations by a large amount (e.g., 5 percentage points).

"Market Return - Investor's Costs = Investor's Return."

No, there are ways to outperform "the market." I mentioned PE10-based market timing above. Another way to do so is to tilt toward small cap value or, better yet, micro cap value.

"Any good-quality low-cost bond fund works fine. The type of bonds is far less important than the amount of bonds."

This is really bad advice for someone who owns bonds in a taxable account (i.e. someone who does not have enough room for all his or her bonds in tax-advantaged accounts).
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Re: Wiki updates:

Postby Taylor Larimore » Wed Sep 14, 2011 6:23 am

Barry Barnitz wrote:Hi Taylor & Rick:

I have updated our wiki Gems page:

Wiki article link: Taylor Larimore's Investment Gems.

And I have taken a stab at creating a page for Rick in our Books and Authors and Bogleheads Authors category.

Wiki article link: Rick Van Ness.

regards,


Hi Barry:

Thank you for including Rick's valuable quotes in my Investment Gems.

Your "stab" is beautifully done. Rick is a well-deserved addition our list of Boglehead authors.
"Simplicity is the master key to financial success." -- Jack Bogle
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Postby Stickman » Wed Sep 14, 2011 10:12 am

Adding the subtitle you get:
Common Sense Investing: Ten Simple Rules to Finance Your Dreams
by Rick Van Ness (aka “Stickman”)

Most of you will recognize these as the core principles that we generally recognize as the Boglehead investment philosophy. This book, like the video series, introduce these concepts to ordinary investors and encourage simple one-page plans to achieve your financial goals.

It is very short, as are the videos. The target is the 99% of working Americans who never learned the basics about how to invest wisely. Hopefully it is short enough, and interesting enough, to read all ten principles. There are tens of millions of these people on Facebook everyday.

It is challenging to convey the common sense without getting side-tracked by the exceptions to these rules. This is one talent where Jack Bogle has exceptional eloquence. But here on the Boglehead forum we can explore the nuance more completely. That’s what makes this forum so interesting—well to me, but not to most of the world I’m afraid. It’s too bad, because the generous spirit of the Bogleheads is just wonderful. It inspires me.

Thank you Taylor for digging out nuggets.

I’d like to add a shameless plug by citing the praise from inside the front cover—from people who I have learned much from. Many will enjoy this first one!

Praise from professional money managers:
“Hide this book in a safe place because grossly overpaid investment advisors are burning every copy they can find.”
—Rick Ferri, CFA, President, Portfolio Solutions LLC
Author: All About Asset Allocation, All About Index Funds, and others.

“Rick has produced a masterful financial guide for beginning investors and old hands alike. If you want to get started investing the right way, this book provides the clarity and backbone to achieve your financial destiny.”
—Bill Schultheis, Financial Adviser, Soundmark Wealth Management, LLC
Author: The New Coffeehouse Investor

“Rick has provided a great service. In terms that the novice investor can understand, he provides ten simple rules that provide the prescription for investment success. In fact, if you follow his rules you are virtually guaranteed to outperform the majority of investors, both individual and professionals alike.”
—Larry Swedroe, Principal and Director of Research, Buckingham Family of Financial Services
Author of eleven books on investing

Praise from academics:
“Here are 10 simple, easy to follow, and proven investing rules. Investing an hour reading this short book will make you a better investor.”
—Burton G. Malkiel, Princeton University, Professor of Economics
Author: A Random Walk Down Wall Street

Praise from respected authors:
“Common Sense Investing captures the core elements of the Bogleheads(SM) investment philosophy in terms any investor can easily understand and implement. Read it and reap!”
—Mel Lindauer, Forbes columnist
Co-author: The Bogleheads’ Guide to Investing and The Bogleheads’ Guide to Retirement Planning

Remember, anyone can watch the videos for FREE here:
http://www.bogleheads.org/wiki/Video:_B ... philosophy
But many find the book convenient, especially when digesting the concepts for the first time:
http://www.amazon.com/dp/1466204516?tag ... adswiki-20
This link has the Boglehead Amazon affiliate link. It won’t cost you any more, but a portion of the sale will help support the Boglehead wiki. Additionally, 100% of the author’s revenue from sales of this book will be applied towards promoting financial literacy through bite-sized videos, short books, the Boglehead wiki, and other educational projects.
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Postby pkcrafter » Wed Sep 14, 2011 11:19 am

Thank you, Taylor, and thank you, Rick. The book looks excellent.

fredflintstone wrote: I agree with most of the advice given but I respectfully disagree with a few items:

"It is at least very difficult, if not impossible, to succeed at market timing over the long-run."

Professor William Pfau's research on PE10-based timing suggests otherwise: http://mpra.ub.uni-muenchen.de...._29448.pdf

fred, you are nit-picking. It should be obvious this book is not written for advanced readers, it is aimed at helping those who will benefit from fundamentals. Rick's comment about timing is correct.

Even Bogle has advocated "tactical asset allocation" (in other words, market timing) at extreme valuations.

Forget it. The chances of average investors mucking about with timing and increasing returns is low.

"How about rebalancing every birthday: Is that market timing? No. It's an example of having a plan and sticking to it."

I agree it is not market timing. However, it is not the optimal approach. Based on advice I've received from other Bogleheads, I think it makes more sense to rebalance whenever current allocations deviate from target allocations by a large amount (e.g., 5 percentage points).

Hard to argue with this one, expect to note most average DIY investors aren't really interested in following their portfolios as much as some of us. Nod goes to Rick's advice.

"Market Return - Investor's Costs = Investor's Return."

No, there are ways to outperform "the market." I mentioned PE10-based market timing above. Another way to do so is to tilt toward small cap value or, better yet, micro cap value.

Fred, you do not understand the audience this book was written for. Average investors would not have a clue what you're talking about, and more importantly, they don't care to know. In short, this book looks like an excellent aid for the audience it is intended.



Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Postby Stickman » Thu Sep 15, 2011 9:44 am

Good comments Fred and Paul.

You'll find much more in the book (and videos) than what were quoted in Taylor's "gems." I do hope you'll like it.

I wish to assure you that I devoted an appendix to illustrate how rebalancing works, identify popular alternatives besides the calendar-based strategy, and provide appropriate links to the Boglehead wiki for more details.
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