By: Larry MacDonald
Many books on passive index investing have been published in recent years. Taylor Larimore offers an excellent bibliography on his Investment Gems webpage: not only does he provide a comprehensive list of books, but also a collection of key excerpts from each book.
Going over the quotes, newbies can get a feel for the passive indexing approach without the time-consuming task of reading each book (although some of them must be read by the serious student). As for experienced passive index investors, they can get a good refresher plus a reinforcement of their discipline.
I’ve been going through the quotes myself and filtering them down into a more manageable list that still conveys the essential themes in each book. My original idea was to create a reference for myself but others might find it useful too. Here is what I have compiled so far (with more to come).
All About Index Funds (2002)
Rick Ferri
“When you are finished choosing a bond index fund, a total U.S. stock market index fund, and a broad international index fund, you will have a very simple, yet complete portfolio. This approach offers broad diversification, low fees, tax efficiency, and ease of maintenance”
“John Bogle, founder of the Vanguard Group, is one of those who believe in the one-fund concept. If you take Bogle’s advice, you will buy one bond index fund, and one total U.S. stock market index fund. There is absolutely nothing wrong with this approach.”
“Adding bond index funds to a portfolio of stock index funds lowers investment risk without significantly lowering returns.”
“Quote from Allan Greenspan: ‘This decade is strewn with examples of bright people who thought they built a better mousetrap that could consistently extract abnormal returns from the financial markets. Some succeed for a time. But while there may occasionally be mis-configurations among market prices that allow abnormal returns, they do not persist.’”
All About Asset Allocation (2005)
Rick Ferri
“Successful investing hinges on three steps: the development of a prudent investment plan, the implementation of that plan, and a commitment to follow the plan in good times and bad.”
Asset allocation is the cornerstone of a prudent investment plan and is the single most important decision that an investor will make in regard to a portfolio.”
“Simply stated, asset allocation is a means of spreading your investment risk across many different types of securities, thus reducing overall portfolio risk and subsequently increasing portfolio return.”
“Asset allocation eliminates the need to predict the future direction of the markets and eliminates the risk of being in the wrong market at the wrong time.”
“The starting point of a portfolio is its equity and fixed-income mix.”
“If you are going to add only one additional U.S. common stock mutual fund to a core position in a U.S. stock market fund, I recommend placing about 30% in a small-cap value index fund.”
The Bogleheads’ Guide to Investing (2005)
Michael LeBoeuf, Mel Lindauer & Taylor Larimore
“Knowing nothing about investing might be a benefit. You won’t have to unlearn many popular beliefs propagated by Wall Street and the media that aren’t true.”
“Index investing is an investment strategy that Walter Mitty would love. It takes very little investment knowledge, no skill, practically no time or effort–and outperforms about 80 percent of all investors.”
“The most important key to successful investing can be summed up in just two words–asset allocation.”
“An asset allocation plan is based on your personal circumstances, goals, time-horizon, and need and willingness to take risk.”
“It’s important for you to understand that stock and bonds go up–and they go down. You need to be comfortable with that fact.”
“We know that by simply changing our allocation between stocks and bonds, we can lessen the amount of volatility in our portfolio until we reach our comfortable sleep level.”
“A Financial Research Corporation study determined that the expense ratio is the only reliable predictor of future mutual fund performance.”
To be continued… see Part II.
5 Responses to “ Quotable guide to passive investing (I) ”
“Asset allocation is the cornerstone of a prudent investment plan and is the single most important decision that an investor will make in regard to a portfolio.”
That may have been true at one time, but in today’s world – and global economy – it’s no longer true.
The sad part is that many people still believe it and pass this advice to the masses. And those masses will suffer the consequences.
Why is it not true? Because so much is dependent on so much else. One simple exam=le is how gold, oil, and the stock market are rising in tandem. Not oo long ago that would have been an impossibility.
The correlation between assets is not 100%, but it is high enough to result in problems when those assets fall together. It was just a year ago that everything was tumbling at once – except for bonds. They held up well, continuing the illusion that ‘proper’ asset allocation will protect an investor from calamity.
It’s going to take more bear markets and more people suffering extremely monetary hardships before these ‘financial pros’ recognize the error of their ways. By then they will have destroyed millions of lives – all becasue they refuse to see what is in front of their noses.
For anyone who wants guaranteed safety for a stock market portfolio, conservative option strategies are available. Yes, there is a cost. One must give up the possibility of a big upside to guarantee that he/she will never incur 2008-type losses. To me it’s an easy decision.
Regards
By Mark Wolfinger on Nov 10, 2009
If you want to read a dozen or so investment books in a hurry this link gives the coles note version of them
By Bob on Nov 27, 2009