Investing in 100 Words

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iceport
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Investing in 100 Words

Post by iceport » Tue Nov 25, 2014 2:13 am

Kaye Thomas at Fairmark.com has a knack for clear, concise explanations. He must have challenged himself to write this 100-word summary of investing basics. I just happened upon this article on my last visit to the Fairmark.com site.

Investing in 100 Words

Is it possible to say all you really need to know about investing in 100 words? Judge for yourself.


What do you think?

--Peter
"Discipline matters more than allocation.” ─William Bernstein

red5
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Re: Investing in 100 Words

Post by red5 » Tue Nov 25, 2014 5:29 am

I like it. Nothing technical really, just simple and sensible language that anyone can understand and learn from.

basspond
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Re: Investing in 100 Words

Post by basspond » Tue Nov 25, 2014 7:06 am

Good start but can be said in fewer words;

Save at least 10% of any wage/income in at least 3 different low cost index fund classes. Do not get exuberant in market run ups or panic in down turns. Time is your friend. It's not how much you make its how much you spend.

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nisiprius
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Re: Investing in 100 Words

Post by nisiprius » Tue Nov 25, 2014 7:37 am

Pretty good, but strained. I'll bet the author could have said it better if it weren't for being determined to hit a magic but arbitrary number. Nevertheless, I should try to learn from that good example.

The comment on diversification, "Diversification can reduce risk without reducing growth," is a very interesting way to put it. Despite the customary disclaimer "Diversification does not necessarily ensure a profit or protect against a loss in a declining market," if you were to ask the average novice investor why diversification is important, that is exactly what they would say it does.

The second question that needs to be asked is this. Even in 100 words she manages to hedge her statement by using the word "can." Well, what does "diversification can reduce risk" mean, exactly? Does it, or doesn't it? And by how much? A "diversified" T. Rowe Price 2030 target-date fund lost 49.4% in 2008-2009 when the S&P 500 lost 52.4%. It is technically true to say that diversification in the fund reduced the risk, but it is probably not the picture that comes to the novice investor's mind.

186 words. Phooey. (And now it's 191 because a correspondent pointed out to me that I needed to correct a foolish gender assumption).
Last edited by nisiprius on Tue Nov 25, 2014 8:32 am, edited 2 times in total.
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Aptenodytes
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Re: Investing in 100 Words

Post by Aptenodytes » Tue Nov 25, 2014 8:03 am

Some of the points use more words than necessary. If I were doing my own version I'd leave room for this:

"Most investment advice is wrong and self-serving. Seek out proven, objective guides, which do exist."

I find that lots of people don't know the first point. And some who accept the first point don't know the second. Together they are among the most powerful insights to be gained.

I'd amend the diversification statement to "Diversification reduces risk a lot with only modest effects on growth." The most common diversification strategy is to add bonds to equities, and that does reduce growth. Adding international to domestic does not. If this is only focused on stock investing, then I'd just have it say "Diversification reduces risk without affecting growth" though even that statement is off -- e.g. if you are starting from a 100% small-cap-value portfolio and you decide to diversify by adding in large-caps, you will lower your expected returns. There is seldom a free lunch.

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CyberBob
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Re: Investing in 100 Words

Post by CyberBob » Tue Nov 25, 2014 10:08 am

A good concept-oriented companion to the classic one-page guide from Scott Adams, the creator of Dilbert.

    Everything you need to know about financial planning

  • Make a will.
  • Pay off your credit cards.
  • Get term life insurance if you have a family to support.
  • Fund your 401(k) to the maximum.
  • Fund your IRA to the maximum.
  • Buy a house if you want to live in a house and you can afford it.
  • Put six months’ expenses in a money market fund.
  • Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement.
  • If any of this confuses you, or you have something special going on (retirement, college planning, tax issues) hire a fee-based financial planner, not one who charges a percentage of your portfolio.
https://retirementplans.vanguard.com/VG ... nalFinance

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Re: Investing in 100 Words

Post by Anon1234 » Tue Nov 25, 2014 10:38 am

nisiprius wrote:The comment on diversification, "Diversification can reduce risk without reducing growth," is a very interesting way to put it. Despite the customary disclaimer "Diversification does not necessarily ensure a profit or protect against a loss in a declining market," ... A "diversified" T. Rowe Price 2030 target-date fund lost 49.4% in 2008-2009 when the S&P 500 lost 52.4%. It is technically true to say that diversification in the fund reduced the risk, but it is probably not the picture that comes to the novice investor's mind.

I agree, but I think you are reading it as a boglehead, and your interpretation shows that you are probably not the intended audience. Think about the stereotypical retail investor. E.g. Cramer tells his viewers they are diversified if they own 5 individual stocks, in which case broad index diversification would substantially reduce risk.

Aptenodytes wrote:... I'd leave room for this:"Most investment advice is wrong and self-serving. Seek out proven, objective guides, which do exist."

IMO the best advice is specific, clear & directive; it tells you exactly what to do. Of course it can be bolstered by example of mistakes too. As an example. When your kid is nervous about the school play do you say "don't fidget, don't be so quiet!" or do you say "Stand here, speak loudly, smile, then walk off the stage when you hear the piano start to play."

To say what you said in an even more generic, but still relevant way: "Buyer beware" which is not particularly helpful.

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oldzey
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Re: Investing in 100 Words

Post by oldzey » Tue Nov 25, 2014 11:19 am

Investing done right...

Watching grass grow...

Both are boring!

Source: Carl Richards sketch from http://www.behaviorgap.com
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

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tyler_cracker
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Re: Investing in 100 Words

Post by tyler_cracker » Tue Nov 25, 2014 9:59 pm

rather than picking 100 words to invest in, i own the whole dictionary.

Sagenick48
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Re: Investing in 100 Words

Post by Sagenick48 » Tue Nov 25, 2014 11:06 pm

I liked the quote from the link

"However, Adams said he no longer follows his rule to invest 70% in a stock index fund and 30% in a bond fund. The best-selling author says he invests primarily in municipal bonds today, which are tax-exempt, and also owns land in his adopted home state of California."

The rules change as circumstances change.
The market goes up, the market goes down.

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VictoriaF
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Re: Investing in 100 Words

Post by VictoriaF » Tue Nov 25, 2014 11:18 pm

Read the Bogleheads Forum and Wiki. [6 words]

Victoria
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Re: Investing in 100 Words

Post by Peculiar_Investor » Tue Nov 25, 2014 11:45 pm

tyler_cracker wrote:rather than picking 100 words to invest in, i own the whole dictionary.

Very well done!
Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams

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tludwig23
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Re: Investing in 100 Words

Post by tludwig23 » Wed Nov 26, 2014 12:02 am

100 words? So verbose. I can do it with a limerick.

Investing is not really so hard
First, spend as if you're a bard
An index fund's best
To build up your nest
I'll suggest three from Van-guard
That's what I do: I drink, and I know things. --Tyrion Lannister

letsgobobby
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Re: Investing in 100 Words

Post by letsgobobby » Wed Nov 26, 2014 1:22 am

and haiku:

save one fifth each year
low cost passive indexes
retire wealthy

JLJL
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Re: Investing in 100 Words

Post by JLJL » Wed Nov 26, 2014 3:24 am

letsgobobby wrote:and haiku:

save one fifth each year
low cost passive indexes
retire wealthy


Nice! Is that a 5-7-5 or a 5-7-4? I guess it depends on where you were raised...

MN: RE*TIE*UR
TX: RUH*TAR

(I came up a bit in both places so no offense intended :) )

letsgobobby
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Re: Investing in 100 Words

Post by letsgobobby » Wed Nov 26, 2014 8:51 am

"came up a bit"... why yes you did!

Yes I thought about the 5 v 4 problem but thought I'd let it stand as is. My wife's family also "came up" mostly in Texas so ah git it.

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Re: Investing in 100 Words

Post by Fallible » Wed Nov 26, 2014 4:46 pm

nisiprius wrote:Pretty good, but strained. I'll bet the author could have said it better if it weren't for being determined to hit a magic but arbitrary number. Nevertheless, I should try to learn from that good example.

The comment on diversification, "Diversification can reduce risk without reducing growth," is a very interesting way to put it. Despite the customary disclaimer "Diversification does not necessarily ensure a profit or protect against a loss in a declining market," if you were to ask the average novice investor why diversification is important, that is exactly what they would say it does.

The second question that needs to be asked is this. Even in 100 words she manages to hedge her statement by using the word "can." Well, what does "diversification can reduce risk" mean, exactly? Does it, or doesn't it? And by how much? A "diversified" T. Rowe Price 2030 target-date fund lost 49.4% in 2008-2009 when the S&P 500 lost 52.4%. It is technically true to say that diversification in the fund reduced the risk, but it is probably not the picture that comes to the novice investor's mind.

186 words. Phooey. (And now it's 191 because a correspondent pointed out to me that I needed to correct a foolish gender assumption).


Good points and I got a chuckle over "Phooey." :) Also agree re author's arbitrary aiming for 100, although I think 99 would’ve worked. Content aside, I'm guessing the author might have said the same thing in, say, 50 (or 49) words with tighter writing and some reorganizing. For example, the article could lead with and focus on the “hardest part of investing” since he does consider it the hardest. An example of tighter writing in the third graf might be, “Sticking with a good investment through a period of losses is the hardest part of investing.”

Then again, the succinct BH philosophy/principles and Scott Adams’s list also do very nicely.
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

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StormShadow
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Re: Investing in 100 Words

Post by StormShadow » Wed Nov 26, 2014 4:53 pm

3 words: bogleheads dot org.

bpp
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Re: Investing in 100 Words

Post by bpp » Wed Nov 26, 2014 5:13 pm

Diversify and minimize costs.

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Word word word word word word word word word word,
word word word word word word word word word word,
word word word word word word word word word word,
word word word word word word word word word word,
word word word word word word word word word word.

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Taylor Larimore
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Investing does not need to be complicated.

Post by Taylor Larimore » Wed Nov 26, 2014 6:35 pm

Peter:

Thank you for your reminder that investing does not need to be complicated.
Simplicity is the master-key to financial success. When there are multiple solutions to a problem, choose the simplest one. -- Jack Bogle

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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