The Little Book of Common Sense Investing by John C. Bogle

Common Sense Investing

Summary
  1. John C. Bogle, the founder of The Vanguard Group and one of the most influential men in finance, offers extremely compelling evidence that for the vast majority of people, the  most efficient way to invest your money is through a broad, market-wide index which is tax efficient and has minimal costs.
Key Takeaways
  1. Buying a fund that holds the market portfolio and holding it forever is the best possible play you can make for the long-term growth of your money. This index beats 80%+ of active managers on a long-term basis
  2. The importance of finding an index with low fees, low-turnover and that is tax efficient cannot be overstated
  3. Diversify (which the index inherently does), minimize investment expenses, focus your emotions where they cannot wreak the kind of havoc that most people experience in their investment programs, rebalance in a disciplined fashion, spend less, save more, begin investing early, when something seems too good to be true it usually is, stop watching the stock markets, work less on investing, be skeptical
  4. Take your risk tolerance into account and allocate a fitting portion to equities vs. bonds (which can also be indexed)
  5. Be extremely skeptical and very aware of reversion to the mean – a fund that has performed well the last couple (even 5-10 years) is very likely to revert to the mean
  6. Set up a “funny money” fund that represents at most 5% of your money and “play” around with that. Invest in individual stocks, actively managed fundsETFs (maybe), and commodity funds but never go above this 5% and avoid “closet index” fundshedge funds and hedge fund of funds
  7. If want international index exposure, keep it to less than 20% of your total portfolio
  8. General rule of thumb is told your age in a bond index fund (25 years old, 25% in bond funds…)
  9. Stick to basics with discipline 
What I got out of it
  1. Simple in theory, extremely difficult in practice. Putting aside your ego (if you have any when it comes to stocks, finance, investing, etc.) is extremely difficult but the evidence Bogle provides is hard to argue with. When taking into account taxes, fees, expenses and other frictions that eat away at your money, indexing the vast majority of your portfolio is a no-brainer.

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