Blogs & Comment

Quotable guide to passive investing (I)

Many books on passive index investing havebeen published in recent years. Taylor Larimore offers an excellent bibliography on his Investment Gemswebpage: not only does he provide a comprehensive list of books, but also a collection of key excerpts from each book.
Going over the quotes, newbies can get a feel for the passive indexing approach without the time-consuming task of reading each book (although some of them must be read by the serious student). As for experienced passive index investors, they can get a good refresher plus a reinforcement of their discipline.
Ive been going through the quotes myself and filtering them down into a more manageable list that stillconveys the essential themes in each book. My original idea was to create a reference for myself but others might find it useful too. Here is what I have compiled so far (with more to come).
All About Index Funds (2002)Rick Ferri
“When you are finished choosing a bond index fund, a total U.S. stock market index fund, and a broad international index fund, you will have a very simple, yet complete portfolio. This approach offers broad diversification, low fees, tax efficiency, and ease of maintenance
“John Bogle, founder of the Vanguard Group, is one of those who believe in the one-fund concept. If you take Bogle’s advice, you will buy one bond index fund, and one total U.S. stock market index fund. There is absolutely nothing wrong with this approach.”
“Adding bond index funds to a portfolio of stock index funds lowers investment risk without significantly lowering returns.”
Quote from Allan Greenspan: This decade is strewn with examples of bright people who thought they built a better mousetrap that could consistently extract abnormal returns from the financial markets. Some succeed for a time. But while there may occasionally be mis-configurations among market prices that allow abnormal returns, they do not persist.
All About Asset Allocation (2005)Rick Ferri
Successful investing hinges on three steps: the development of a prudent investment plan, the implementation of that plan, and a commitment to follow the plan in good times and bad.”
Asset allocation is the cornerstone of a prudent investment plan and is the single most important decision that an investor will make in regard to a portfolio.”
“Simply stated, asset allocation is a means of spreading your investment risk across many different types of securities, thus reducing overall portfolio risk and subsequently increasing portfolio return.”
“Asset allocation eliminates the need to predict the future direction of the markets and eliminates the risk of being in the wrong market at the wrong time.”
“The starting point of a portfolio is its equity and fixed-income mix.”
“If you are going to add only one additional U.S. common stock mutual fund to a core position in a U.S. stock market fund, I recommend placing about 30% in a small-cap value index fund.”
The Bogleheads’ Guide to Investing (2005)Michael LeBoeuf, Mel Lindauer & Taylor Larimore
Knowing nothing about investing might be a benefit. You won’t have to unlearn many popular beliefs propagated by Wall Street and the media that aren’t true.”
“Index investing is an investment strategy that Walter Mitty would love. It takes very little investment knowledge, no skill, practically no time or effort–and outperforms about 80 percent of all investors.”
“The most important key to successful investing can be summed up in just two words–asset allocation.”
“An asset allocation plan is based on your personal circumstances, goals, time-horizon, and need and willingness to take risk.”
“It’s important for you to understand that stock and bonds go up–and they go down. You need to be comfortable with that fact.”
“We know that by simply changing our allocation between stocks and bonds, we can lessen the amount of volatility in our portfolio until we reach our comfortable sleep level.”
“A Financial Research Corporation study determined that the expense ratio is the only reliable predictor of future mutual fund performance.”
To be continued see Part II.