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Life is a journey, but the beginning of that journey can have a profound effect on the rest. Reading one book in particular completely changed the trajectory of my investing journey.
While you can learn to like new foods as an adult, most of our food preferences are formed when we are young.
Most sports fans, myself included, root for their hometown team. If you were born anywhere else, you would most likely have rooted for that hometown team. (Though never the Philadelphia Eagles. NEVER)
In the same way, while my views on investing have slightly evolved over time, my core investing philosophies came from a book I read years ago and immediately connected with.
That book is The Bogleheads Guide to Investing (hereafter referred to as The Guide). I’ve read a few investment books before I read The Guide and I just didn’t connect with them. I’ve read a bunch of investment books after I read The Guide and most of them were not as memorable.
The Guide was a life changing book for me because it presents an investing blueprint that made sense and was easy to implement. The idea of technical analysis and digging through charts and graphs while following the comings and goings of companies doesn’t appeal to me.
(As a simple introduction, a Boglehead refers to a follower of the philosophy of John Bogle, the founder of The Vanguard Group. This book as a comprehensive investing guide written by some big time Bogleheads.)
Here are the two reasons why this is my favorite investing book:
Investing Should Be Simple
If you want to make money off of the general public, keep them confused and helpless. Electricians and plumbers want people to call them anytime they have a problem. They can charge for materials and whatever they want for labor. You are dancing to their tune.
They DO NOT want you to go on YouTube and find out the solution to the problem on your own. Contractors don’t want you to go online and get the materials you need at a cheaper price. They will go out of business this way.
But the more you do this, the more knowledge you’ll gain and the simpler things will become. You will also save a lot of money in the process. And let’s face it, you don’t need to get a PhD in plumbing to become a good plumber. You need to find solutions to various plumbing issues. Doing this over time will make you an expert.
The investing industry is very similar. Investment advisers and brokers have a (wait for it…) VESTED interest in keeping you confused. They want you to think investing is a very complicated topic that requires decades of expertise to master. That way, you will be forking over your hard earned money without question.
The Guide says otherwise. It showed me that as long as you are aware of your financial goals and risk tolerance, knowing what to invest in becomes very simple. The key is to stick to your plan despite the ups and downs along the way.
And there will be ups and downs. That’s the nature of investing. And this is where most investment companies will get you. They will make you believe that only they know when the markets will go up or down and that’s why you need to keep paying them.
The simplicity of it all will shock you. But it will also empower you to take control of your investments and focus your time and energy on everything else that matters in your life.
Investing Need Not Be Expensive
The aforementioned investment advisers and brokers who want to keep you confused and take your money? They don’t come cheap. Most financial advisers who manage your investments will take a cut of your assets every year, usually 1% or more.
Plus, they can potentially put you into investments that have high expense ratios while not offering you similar ones with lower expense ratios. (An expense ratio is what you’re charged by the mutual fund company just to be invested in the fund.) And advisers can receive a kickback from mutual fund companies for putting you in a certain investment.
This goes on top of the fee the adviser takes. Not good. The effect of high fees on your investment returns has been well documented. Most mutual fund managers cannot beat the average market return in one year, let alone for decades. So there is no way to justify high fees.
The answer according to The Guide is to stick with mutual funds that have rock bottom fees and track the performance of the overall market you are looking to invest in. In real terms, this means investing with index funds from Vanguard. This will give you two major benefits:
1. You will be paying very low fees
2. Your investment portfolio will be very simple to manage
These two points will put you way ahead of the majority of investors. Those investors are paying high fees and buy and sell at the whim of the market. Investing with Vanguard index funds for the long term will allow you to fully take advantage of compound interest.
The Guide has taught me to focus exclusively on index funds from Vanguard, and that’s where the vast majority of my investments are. The only exception is the 529 college plan for my son, which doesn’t contain any Vanguard funds.
Focusing on Vanguard index funds has provided a great return for my portfolio, but that could be attributed to the bull market that has been chugging along since 2009. More importantly, The Guide has showed me that investing with Vanguard will give my money the best chance to grow over the long term because of low fees and a simple investing plan.
If you can’t tell by now, I highly recommend this book. It will set beginning investors on the right path while showing veteran investors that this is ultimately the best way to invest your money. And it will turn you into a devoted Boglehead like me.