Straight Talk Jack Brennan | April 27, 2021
TWO DECADES AGO, we witnessed the bursting of one of history’s biggest stock market bubbles. Many investors were left burned and bewildered. At the time, I was chief executive of Vanguard and saw the need for a practical, back-to-basics guide to help investors navigate the financial markets. My 2002 book Straight Talk on Investing was born. Since then, we’ve endured a few more market shocks, plus the investing landscape has changed considerably—mostly for the better.
Product choice is greater, investment costs are lower and convenience has vastly improved. What’s more, professional financial advice is now more accessible and affordable. I genuinely believe that there’s never been a better time to be an investor. That said, today, I see much of the same unbridled enthusiasm among market participants that I saw two decades ago, during the heady days of the late 1990s bull market.
This zeal is often fueled by financial firms that lead individuals to confuse trading and speculating with investing. Social media is further fanning the flames. The reality: Investing is not a game—and “gamifying” it strikes me as irresponsible. The timing is coincidental, but an updated and expanded More Straight Talk on Investing was just published. It offers a remedy to today’s speculation and short-termism by emphasizing a timeless, tried-and-true investing approach based on balance, diversification, low costs and a long-term orientation.
At the end of the book, readers will find a summary of 12 principles that offer sound foundational knowledge to novices and a good refresher for those with more experience. I believe these “CliffsNotes” serve as a tonic to true investors and strong medicine to gamers:
1. Develop a financial plan. Identify your goals and design an investment program that’ll enable you to reach them. Be conservative when projecting how fast your money will grow.
2. Become a disciplined saver. Learn to live below your means. Make it a habit to put away money every month. If you aren’t naturally disposed toward saving money, find ways to trick yourself into doing so, such as automating your savings program.
3. Start investing early and keep it up. Make time your ally. Begin setting aside money for your goals as soon as possible. Keep plugging away, contributing fixed amounts on a regular basis in both good markets and bad.
4. Invest with balance and diversification. For balance, invest across the three major asset classes: stocks, bonds and cash investments. For diversification, make sure you aren’t overly exposed to any single company, industry or investment style. For an individual, mutual funds and exchange-traded funds are the simplest, most effective vehicles for accomplishing these two strategies.
5. Control costs. Avoid funds with high annual expenses. The average mutual fund expense ratio was 0.63% in 2019, but there are funds that charge much, much less. While you watch your costs, don’t forget to minimize the bite from taxes. Our Weekly Newsletter
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Source: Straight Talk – HumbleDollar
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