William Bernstein, Ph.D., M.D., is a practicing neurologist in Oregon and also a highly respected author and adviser. Doctor Bernstein is a long-time member of the Panel of Experts at Boglehead conferences.
"I am writing this (e-book) book for my children, my grandchildren, and for the millions of your people who don't have a prayer for retiring successfully unless they take control of their savings and investing." -- William Bernstein
These are valuable excerpts for ALL of us:
Thank you Bill Bernstein."Would you believe me if I told you that there's an investment strategy that a seven-year-old could understand, will take you 15 minutes of work per year, outperform 90% of finance professionals in the long run, and make you a millionaire over time? Well it is true, and here it is: Start by saving 15% of your salary at age 25 into a 401(k) plan, an IRA, or a taxable account. Put it into just three different mutual funds: A US total stock market index fund; An international total stock market index fund; and a U.S. total bond market index fund."
"The conventional 'defined benefit' pension plan of your parents' generation, which provided a steady and reliable stream of income for as long as they lived, has gone the way of disco. Unless you act with purpose and vigor, your retirement options may well range between moving in with your kids and sleeping under a bridge in the rain."
"Dieting and investing are both simple, but neither is easy."
"Life without may seem spartan, but it doesn't compare to being old and poor, which is where you're headed if you can't save."
"As bad as having a roomie may be, it's not nearly as awful as living on cat food at age 70."
"You need an adequate understanding of what finance is all about. The new investor is usually disoriented and confused by market turbulence and the economic crises that often caused it. This is because he or she does not realize that there's nothing more reassuring than being able to say to yourself, 'I've seen this movie before and I know how it ends.' "
"Overcoming your biggest enemy--the face in the mirror--is a daunting task."
"As an investor, you must recognize the monsters that populate the financial industry."
"I've written a few investment books that continue to earn me royalties. I don't want you to buy them."
"Even if you can invest like Warren Buffett, if you can't save you'll die poor."
"If you're starting to save at age 25 and want to retire at 65, you'll need to put away at least 15% of your salary."
"No matter how much debt you have, always, always max out the employer match in your 401(k), 403, or other defined contribution plan."
"Eliminate your credit card debt, followed by your car loan."
"The Millionaire Next Door is the most important book you'll ever read, because it emphasizes the point that there's an inverse correlation between spending and saving. If this book doesn't scare your spending habits straight, nothing will."
"Finance isn't rocket science, but you'd better understand it clearly."
"How risky are stocks? You've no idea. During the Great Depression, stocks lost, on average, around 90% of their value; during the recent financial crisis, they lost almost 60%. It's one thing to think about temporarily losing 60% or even 90% of your savings, the actual experience, in the moment, is unimaginably upsetting."
"Is it possible to predict when such declines might occur, and so avoid them? Don't even think about it: In the past 80 years, no one, and I mean no one, has ever done so reliably."
"Is it possible to find a mutual fund manager or advisor who can beat the market? Again, no: several decades of careful research have shown that managers with superb prior performance usually fall flat on their faces going forward."
"The simplest way to think about investing 'skill' is to imagine a stadium containing 10,000 people. Everyone stands up and flips a coin: heads you stay up, tails you sit down. The laws of probablility tell us that after 10 coin flips, on average about 10 flippers will still be standing. Were they skillful? Of course not."
"The poster child for this phenomenon is a money manager named William Miller, whose Legg Mason Value Trust mutual fund beat the S&P 500 index of stocks for fifteen straight years before giving back nearly all of his cumulative advantage over that index in just three short years."
"There are only two kinds of investors: those who don't know where the market is headed, and those who don't know that they don't know." Then again, there is a third kind: those who know they don't know, but whose livelihoods depend on appearing to know."
"Trading stocks and bonds is like volleying with an invisible tennis opponent. More often than not, that person turns out to be one of the Williams sisters."
"If you want high returns, you're going to occasionally have to endure ferocious losses with equanimity, and if you want safety, you're going to have to endure low returns."
"Your next reading assignment is Jack Bogle's Common Sense on Mutual Funds, perhaps the best introduction to basic finance that's ever been written."
"Vanguard is my go-to for most investors. Because Vanguard shareholders own it, the company has no incentive to gouge them with excessive fees and hidden expenses."
"Jack Bogle, while not a poor man, would almost certainly be a billionaire many times over had he retained ownership in the company, instead of giving it away to the fund shareholders. He is the only person in the history of the financial services industry to have done so and, as you might expect, he has remained, long after his retirement, a strong and clear voice for the rights of small investors."
"Market history shows that when there's economic blue sky, future returns are low, and when the economy is on the skids, future returns are high."
"We often depend on the recommendations of others for, say, restaurants, movies, doctors, or accountants; when all your friends report favorably on one, there's a pretty good chance the recommendation is valid. Finance is the exact opposite; when all your friends are enthusiastic about stocks (or real estate, or any other investment), perhaps you shouldn't be, and when they respond negatively to your investment strategy, that's likely a good sign."
"Humans are 'pattern seeking primates' who perceive relationships where in fact non exist. 95% of what happens in finance is random noise, yet investors constantly convince themselves that they see patterns in market activity."
"The main goal of the average stock broker or financial advisor is to transfer your wealth to them. This advice also applies to most mutual fund companies: they exist to make profits for their owners, not you."
"Avoid at all costs: any stock broker or 'full-service' brokerage firm; any newsletter; any advisor who purchases individual securities; any hedge fund."
"Brokers and advisors may appear to be skilled professionals, but don't be fooled. Doctors, lawyers, and accountants all have the equivalent of post-graduate degrees and had to study for years to pass grueling exams, yet your broker was not required to graduate from high-school."
"Don't come anywhere near a stock broker or a brokerage firm; sooner rather than later you will get fleeced."
"A ready routine for deflecting approaches from friends and relations in the finance industry is an essential survival skill."
"The optimal strategy for most young people is to first max out their 401(k) match, then contribute the maximum to a Roth IRA, then save in a taxable account on top of that."
"Your contributions to your 401(k), IRA, and taxable accounts should be made equally to the indexed U.S. stock, foreign stock, and bond funds available to you. Once per year, you should 'rebalance' them back to equal status."
"There is nothing wrong with an all-in-one target retirement fund, as long as it has low expenses."
"Act as if every broker, insurance salesman, mutual fund salesperson, and financial advisor you encounter is a hardened criminal, and stick to low-cost index funds, and you'll do just fine."
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