The Smartest Investing Book You’ll Ever Read
Absent a lucky streak, the market return is almost always the best return.
Brokers and investment advisors can’t beat market returns over the longterm.
A low-risk portfolio has the largest allocation to bonds, and a high-risk portfolio has the largest allocation to stocks.
In a smart investment portfolio, you’ll hold positions in three basic indices:
- An index representing the US stock market in its broadest terms.
- And index representing the international stock market in its broadest terms.
- And index representing the US bond market in its broadest terms.
Brokers encourage hyperactive investing because they make money through transactions.
Smart investors focus on asset classes, asset allocation, and risk management.
Smart investor don’t chase hot funds and don’t engage in market timing.
In investing, the higher the standard deviation, the riskier the portfolio.
The only way to heat an index is to invest in something other than the index.
Most hedge funds only have a lifespan of about 3.5 years.
Most brokers and funds are held to a suitability standard, which is much lower than a fiduciary standard where an investor’s best interest is the primary concern.
Keep things simple by rebalancing your portfolio twice a year to keep it aligned with your original asset allocation strategy or to adapt it to your new asset allocation strategy.
Over 90% of investment returns are determined by asset allocation, not stock picking or market timing.
Nobody can know when or how much any market will go up, it you can have confidence it will go up over time. For that reason, your best bet is owning the entire market through an index.
Low-Risk Portfolio:
- Total stock market index - 14%
- Total international stock index - 6%
- Total bond market index - 80%
Medium-Risk Portfolio:
- Total stock market index - 28%
- Total international stock index - 12%
- Total bond market index - 60%
Medium-High-Risk Portfolio:
- Total stock market index - 42%
- Total international stock index - 18%
- Total bond market index - 40%
High-Risk Portfolio:
- Total stock market index - 56%
- Total international stock index - 24%
- Total bond market index - 20%
Wall Street’s greatest scam is pretending that luck is skill.
What determines how conservative or aggressive an investor is is their asset allocation strategy, not whether they are or are not trying to beat the market.