The Elements of Investing
Burton Malkiel and Charles Ellis are financial icons and thankfully for the rest of us, who are not, they’ve produced The Elements of Investing. This book is one of my investing favourites, written with straightforward facts and a bunch of do-it-yourself guidance that can be readily applied. In my opinion this book is a must have any investor.
Unlike one of my other favourite books, The Single Best Investment, this book focuses on indexing and not dividend-investing as a strategy to achieve financial freedom. As someone who uses a two-pronged strategy to work towards my retirement dreams, dividend-investing and indexing, I found this book an outstanding overview to cement my beliefs in the power of passive management for long-term investing.
I had so many great takeaways from this book I needed to break it down into three blogposts for you! Part 1 was posted last week. Here is Part 2. I hope you enjoy!
“The secret to success and enjoyment in so many parts of life is to know your capabilities and stay within them.”
Some of the equity ETFs “Burt and Charley” recommend:
Total U.S. Stock Market
- iShares Russell 3000 ETF (IWV:US)
- Vanguard Total Stock Market ETF (VTI:US)
Total World Ex-U.S. Market
- Vanguard FTSE All World ETF (VEU:US)
Total World Including U.S. Market
- Vanguard Total World ETF (VT:US)
“Just as you need to diversify by holding a large number of individual stocks in different industries to moderate your investment risk, so you also need to diversify by holding different asset classes. One asset class that belongs in most portfolios is bonds.”
“There is one final diversification lesson that we need to stress. You should diversify over time. Don’t make all your investments at a single time. You can reduce risk by building up your investments slowly with regular, periodic investments over time.”
“The right response to a fall in the price of one asset class is never to panic and sell out. Rather, you need the long-term discipline and personal fortitude to buy more. Remember: The lower stock prices go, the better the bargains if you are truly a long-term investor.” (I’m trying to do this more, not easy sometimes)
“Rebalancing will not always increase returns. But it will always reduce the riskiness of the portfolio and it will always ensure that your actual allocation stays consistent with the right allocation for your needs and temperament.”
“As in so many human endeavours, the secrets to success are patience, persistence, and minimizing mistakes.” (Very well said)
“Buy and hold a low-cost broad-based index fund and you are likely to enjoy well-above-average returns because of the low costs you pay.”
Burt’s (Burton Malkiel) asset allocation ranges for different age groups:
% in Stocks
% in Bonds
80s and beyond
“The buy-and-hold investor who prudently holds a diversified portfolio of low-cost index funds through thick and thin is the investor most likely to achieve her long-term investment goals.”
What do you think about this from Malkiel and Ellis? Does it reasonate with you and if so, how?
Anything you try and live by here, in your journey to financial freedom?
Your turn readers, let me know!