So you’ve opened a brokerage account and you’re ready to start putting your money to work. The big question is: what should you buy first? For many people just getting into , the answer isn’t a single stock but an entire index.
Back in 1993, while writing my book , I explored the countless asset allocation strategies available to investors. It struck me then that sometimes, “less is more.” I had a hunch that a simple, mainstream balanced fund—60% in U.S. stocks and 40% in U.S. bonds, all in a low-cost index format—could offer the same functional benefit as hiring a high-priced investment advisory firm.
When you think of Benjamin Graham, the author of the 1949 classic , you probably think of value investing—the meticulous art of finding bargain stocks. But what many don't realize is that Graham had a very different message for the vast majority of people, one that feels surprisingly modern and is essential for anyone interested in .
Over the past decade or so, the classic principles of the traditional index fund (TIF) have been met with a challenger that looks a lot like an ally: the exchange-traded fund, or ETF. At its core, an ETF is an index fund specifically engineered for easy trading. If you’re , it's crucial to understand this distinction. The original index fund, created over 40 years ago, was built on a long-term investment philosophy. In contrast, using an index fund as a trading tool is, by definition, short-term speculation. This is a fundamental difference when it comes to .
When it comes to investing, most of the attention goes to the stock market. But the simple, straightforward math that governs investing success applies even more powerfully to bond funds. While countless factors can sway an individual stock, the bond market dances to the rhythm of a single dominant force: the prevailing level of interest rates. Fund managers can’t do much to change those rates, making their job fundamentally different from that of stock pickers. This is a core concept in .
It’s one of the most frustrating secrets in personal finance: the returns that mutual funds advertise are almost never what their investors actually earn. It sounds unbelievable, but even industry insiders like Fidelity's Peter Lynch and Mad Money's James Cramer have acknowledged the issue. While most people know that actively managed funds often struggle to beat a simple S&P 500 index fund, the reality is even harsher.
When it comes to , almost everyone—from financial advisors to the media—points to a fund’s past performance as the key indicator of success. We’re taught to look at the track record to predict future results. But deep down, we know that performance is fickle; it comes and goes. This is a crucial lesson for anyone .
Before you dive into complex strategies or even simple concepts like index funds, it’s crucial to understand the game you’re playing. , really? At its core, it's about owning a piece of a business. To make sense of the noise surrounding , let's borrow a simple story, a version of a parable once told by Warren Buffett.
We’ve covered a lot of ground on the journey to getting your finances in order, especially for those of us navigating this in our 20s and 30s. Now, as we bring it all together, let's focus on the most important part: turning knowledge into a real-world plan. After all, financial literacy is only powerful when you use it.