Common Sense Investing-Simply but Not Easy!
Successful investing is simple; it is about using common sense. Warren Buffett has said it is simple to invest in your retirement, but it is not easy. ( I added the words "your retirement" into Mr. Buffett's quote). The average working person's best way to implement this strategy is simple: Buy a fund that holds this all-market portfolio and holds it forever, and keep adding to the fund as your budget allows. Using an index mutual fund is easy and straightforward, plus you save a ton of money on investing expenses. The index mutual fund eliminates the risks of individual stocks, market sectors, and manager selection. Only stock market risk remains, which can reduce with proper asset allocation based on your risk tolerance.
As investors, we humans are average at investing. As John C. Bogle states in his book "Common Sense Investing,"; For each percentage point of extra earns, another of our fellow investors suffers a return loss of the same amount. Before the deduction of the costs of investing, beating the stock market is a zero-sum game. If you win, someone loses. As Warren Buffett recently wrote, "when trillions of dollars are managed by Wall Streeters charging high fees, it will be the managers who reap outsize profits, not the clients." Mr. Buffett is referring to actively managed mutual funds, not low-cost index mutual funds.
Most investors are finding using the indexed mutual fund boring. Amature investors accept the status quo of today's crazy financial excitement of buying and selling stocks like Tesla, Apple, Google, Facebook or chasing the craziness of watching Bitcoin's price move up and down on an hourly basis. In the casino, the house always wins. In horse racing, the track always wins. In investing, the financial industry always wins, and investors always lose as a group. The actual game is about minimizing the share of the returns earned by your investments that Wall Street does not consume and maximizing returns to you, the investors. For the inexperienced consumer, it is easy to avoid the stock market casino. Buy a Standard & Poors 500 index fund or a total stock market/bond fund indices and hold it forever. It is simple but not easy given our human behavior shortcomings.
The Vanguard Fund's founded on the truly mutual fund-shareholder-owned structure and Vanguard's index fund strategy--will enrich you over the long-term. I leave you with John C. Bogel's words; it will take a long time to fix our financial investing system. But the glacial pace of that change should not prevent you from looking after your self-interest. You don't need to participate in the investment industry's expensive foolishness. You can refrain from playing the loser's game of trying to beat the market; you can begin the task simply by using your common sense, understanding the system, and eliminating all of its high costs.
See you next week on how to invest rationally.