07-09-2003, 9:48 PM | Post #88105 |
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Andrew Clarke, CFA, and Vanguard employee, has written "Wealth of Experience" based on a survey of 600 Vanguard shareholders. This unusual book distills their investment experience into an easily understood investment program that works. Here are excerpts I'll call: "Investment Gems":
"Saving is the single most important key to investment success. If you don't save, you can't invest. It's that simple."
"There are thousands of reasons not to save."
"It doesn't matter how much you make; it's how much you save."
"It's not timing the market, it's time in the market."
"The first step is coming to terms with the anti-savings: debt."
"If you expect to earn 7% a year on average, your investment will double about every 10 years."
"Be content to grow rich slowly."
"If you want to take a chance on getting rich, buy a few individual stocks, but realize you will probably go broke."
"Continually chasing new investments to achieve the greatest returns will make you a loser in the long run."
"If you cannot stick to a strategy, but are subject to knee-jerk reactions, you should get a professional to manager your investments."
"After you've been investing for a while, the whole thing seems simple."
"A successful investor has a good knowledge base, a well-defined investment plan, and nerves of steel to stick with it."
"Even good investment programs go through rough patches."
"Learning about investing isn't necessarily expensive or all that complicated."
"Plenty of people in the financial business have a vested interest in making the subject seem quite complex."
"Exposure to the daily flood of information is not crucial to being a succcessful investor."
"Numerous studies have shown that trading frequently is apt to be quite harmful to your financial health."
"Diversification has been called a free lunch."
"If you earn $100,000 a year, and interest rates are 5%, you've got the equivalent of a $2 million bond in your company."
"A major bonus of focusing on asset allocation first is that it simplifies the task of selecting which funds or stocks to own."
"You probably need at least $1 million and several hundred stocks to gain reasonable diversification."
"Very few investors who hold only stocks have the fortitude to ride out a severe, prolonged market downturn."
"If your stock portfolio looks very different from the broad stock market, you're assuming additional risk that may, or may not, pay off."
"It doesnt really matter whether you rebalance annually, semiannually, or quarterly."
"During 2000-2001, more than 31% of all stocks lost at least half their value--only 5% of stock mutual funds lost as much."
"So long as an index is representative of the securities owned by active managers, the index fund will always outperform the average."
"Theory and experience show that just 20% to 30% of active managers outperform the market over the long haul. However, it's very difficult to know in advance which managers will do so."
"Most bond funds maintain a constant average-weighted maturity. Individual bond maturities shrink every year."
"All investors are driven by two forces, greed and fear."
"Systematize the habits and practices that can keep emotions at bay: dollar-cost averaging, rebalancing, simplifying, and indexing."
"Chasing performance is one of the most common pitfalls."
"Excessive monitoring of your portfolio is expecially hazardous."
"The probability of loss is about 50% over a time horizon of 1 day. About 30% over a year. Less than 1% over ten-years.
"Successful investors have the patience to wait out market fluctuations."
"Simplifying and indexing reduce the number of decisions you have to make. The fewer decisions you make, the fewer opportunities emotion has to wreck your plan."
"Setting a goal, developing an appropriate asset allocation, and selecting a handful of funds are not hugely complex tasks. The hard part comes next: battling your emotions so that you can stick with your plan through thick and thin."
"Tune out the incessant noise that causes so much trouble."
"Beware of overconfidence."
"'Basically the newspaper,' said one millionaire when asked how he keeps up with his portfolio."
"Reduce the number of funds. Keep them in the same fund family or company and don't change very often. Stay the course."
"Investment costs and taxes are a one-two punch that can do a lot of damage to your portfolio."
"In a five year study, in eight of Morningstar's nine stock-fund categories, the funds with the lowest costs outperformed those with the highest costs."
"'You get what you pay for' may be true if you're shopping for a car, but the reverse is true in investments."
"Smart tax management can be a powerful contributor to the succcess of your investment plan."
"Taxes trimmed the return of the average stock fund by 2.5% a year during the 1990s -- more than was consumed by mutual fund operating and transaction costs."
"Don't listen to your buddies. Their investment advice ranks with f
Originally posted in thread: 28417