Investment's building blocks - always worth reinforcing


On the eve of the US presidential elections, The New York Times praised three personal finance books that share a common thread of reminding investors about the "building blocks" of sound investment and personal financial practices.



These books – by founder and former chief executive of Vanguard John Bogle, investment author Andrew Tobias and financial planner Carrie Schwab-Pomerantz – have become even more compelling reading as global markets immediately react to the election results.

In the wake of the US elections, Australian investors are being acutely reminded about how much is beyond their control – including the emotions of other investors and how world stock markets impact on Australian share prices.

Fortunately, as such books remind us, investors who follow the principles of sound investment practice have more control over their financial futures than they may think.

Investors have the power to choose their long-term goals, set appropriate strategic asset allocations and investment diversifications for their portfolios, to minimise their investment management costs and to efficiently manage their taxes. And disciplined investors can aim to keep their emotions under control by concentrating on their long-term objectives.

Heard it all before? Chances are you are a regular Smart Investing reader. (See How to climb the wall of worry, November 1.)

The Little Book of Common Sense Investing by John Bogle has been reminding us about investment's building blocks for almost a decade while The Only Investment Guide You'll Ever Need by Andrew Tobias has been at it for almost 40 years. Meanwhile, The Charles Schwab Guide to Finances after Fifty by Carrie Schwab-Pomerantz is a relative newcomer.

Consider some of the straightforward pointers from the three authors:

  • Bogle: "Successful investing is all about common sense." Don't try to pick the best time to buy and sell stocks – consistent success with market-timing is virtually impossible; diversify to minimise risks (and spread opportunities); recognise the value of compounding, long-term returns; and keep investment costs as low as possible. "The more the managers and brokers take, the less investors make."
  • Tobias: Again, taking a common-sense approach to looking after investments and other personal finances is his over-arching message. For instance, buy investments you can understand; stay away from investments that seem too good to be true; and don't carry credit card debt.
  • Schwab-Pomerantz: Calculate how much you will spend each year in retirement, calculate how much capital is needed to finance that lifestyle and, finally, determine how you are going to save enough. (A few words of caution: This book contains details of the US tax, social security and retirement systems that are not relevant in Australia. You should focus on her big-picture messages, which are particularly aimed at those over 50.)

These authors appear to successfully deal with a challenge that many personal investor writers. This is challenge of making their explanations of disarmingly simple investment and personal financial principles high readable – even for more experienced investors.


Robin Bowerman
14 November 2016

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