Investing Rules from an Old Guy

Fixed Income a.k.a. Bonds

I’ll be the first to admit that I have little understanding on how to select a bond for purchase. I’ve done it once or twice, but I have no idea whether I did well or not. My solution is to buy a bond fund or to use a managed financial advisor that specializes in bonds.

from Miles Mikasa

I greatly admire Warren Buffett and John Bogle (founder of The Vanguard Group, the largest mutual fund company). They highly recommend index funds (and by extension, index ETFs) for the vast majority of investors. The low cost, tax efficiency, and instant diversification consistently beat over 80% of actively managed mutual funds. Warren Buffett has set up his estate to invest his heirs' inheritances in index funds.

Of course, it *IS* possible to beat the market. Warren Buffett is famous for his market-beating investment returns. But in addition to having access to deals that almost no one else can get (by virtue of his gargantuan cash assets and his stellar reputation), one needs to commit the time, energy, and focus necessary to succeed. Warren says he loves his job so much, he skips to his office. He reads financial reports all day, because he loves the activity and finds it so fascinating. For a young person starting a career in a non-finance field – it is very tough to do.

UNLESS one is extraordinarily interested, skillful, COMMITTED, and RICH, young investors should ABSOLUTELY avoid:

• Day Trading
• Options Trading
• Short-selling
• Limited Partnerships
• Tax Shelters

Finally, know that investing is a process of monitoring and learning. The monitoring need not be obsessive, but the portfolio will need attention. This is especially true if one has not yet set up a personally comfortable asset allocation plan, and a portfolio filled with index funds.

You probably have often heard the phrase, "I would rather be lucky than smart."

In my experience, it is smart not to count on luck.

Additional Reading

From Miles Mikasa: A quick search for Personal Finance Courses found the following that might be interesting for starters.

• https://www.coursera.org/learn/family-planning#syllabus
• https://www.edx.org/course/personal-finance
• https://money.cnn.com/pf/money-essentials/

As a young investor I read “The Richest Man in Babylon” by George S. Clason. It's short, easy reading, and I recommend it highly. Fictional, but illustrative.

From Jeff Wong: I just happen to be re-reading “A Random Walk Down Wall Street”. I think the concepts for stock investments addressed in the book are outstanding! As Dennis stated, ETFs are the way to go, long -term. It’s great, an easy read, and it seems spot on.