“This book will not tell you how to beat the market. No truthful book can.“
We read the 15 best Personal Finance books (according to the experts) so you don’t have to! The Intelligent Investor: The Definitive Book on Value Investing by Benjamin Graham (Author) with contributions by Jason Zweig and Warren Buffett wraps up our series. This is a great book to end on. Mind you, no one told me the last three investment books are a combined 1700 pages in length, but I won’t bore you with my suburban first world problems. This review is for you, not me.
The intelligent investor is the first book ever to describe, for individual investors, the emotional framework and analytical tools that are essential to financial success. It remains the single best book on investing ever written for the general public.
How to Turn $500 into a Million
Let’s say you can spare $500 a month. By owning and dollar-cost averaging (which simply means that you invest in common stocks the same number of dollars each month or quarter) into just three index funds–$300 into one that holds the total U.S. stock market, $100 into one that holds foreign stocks, and $100 into one that holds U.S. Bonds–you can ensure that you own almost every investment on the planet that’s worth owning.
What does $500/month get you for your troubles? We will assume here that you plan to retire at age 67 and manage a 7% average annual return.
- If you’re wondering where you can average a 7-percent return, visit @PersonalFinanceClub or keep on reading.
- If you want to invest less/more than $500/mo. use this calculator to estimate your returns.
Based on the above assumptions, here are your final returns by age:
- If you started investing $500/mo at age 20: $1,975,346
- 30: $962,024
- 40: $446,903
- 50: $185,041
The Stock Market Must Be Crazy
I find it interesting that nearly 100 percent of the news is dedicated to stock market coverage every time there’s a inconsequential blip, yet 80 percent of the value of the market is held by the richest 10 percent. Yes, the stock market is a wealth builder. And, it is important. It should not control your life. In fact, one of the best investment decisions you can make is to ignore the news.
The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which make them too cheap). The intelligent investor is a realist who sells to optimists and buys from pessimists.
You Are Your Investment’s Worst Enemy
The investor’s chief problem–and even their worst enemy–is likely to be them self.
For example, Fidelity Reviewed Which Investors Did Best And What They Found Was Hilarious. Yes, there are people who beat the stock market. Just like there are people who win the lottery. Statistically, you will not be one of these people.
Even if you were the lottery-winning type, you would have to dedicate a lot of time, energy, and demonstrate the kind of mental stamina and emotional fortitude that will allude most people across a 78-year lifespan and approximately 40-year investing period. Why bother?
The simpler, and for most people smarter, option is to automate the central part of your investment portfolio (70 to 90, or even 100 percent) using a low-cost index fund. This one action will allow you to invest better than more than half the people who dedicate their entire lives to “mastering” the stock market. As an added bonus, you would do so for hundreds, if not thousands, less in “management” and advisor fees.
A creditable, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability. Since anyone–by just buying and holding a representative list–can equal the performance of the market averages (see picture above!).
Get Rich Easy (But Not Quick)
You, like I, are probably disappointed in the lack of complexity of this post. You are right to feel this way. But this post was simply written simply on purpose. Like many of you, I figured that after reading 15 books on money and investing I would discover the holy grail of wealth and finance. I am sad to learn that all I really have to do is invest $500/month, sit back, and watch the paint around my home dry.
To enjoy a reasonable chance for continued better than average results, the investor must follow policies which are (1) inherently sound and promising, and (2) not popular on Wall Street.
Life comes at you fast enough already. Don’t overcomplicate it.
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