Investing News That’s Too Good To Be True

“The great paradox of this remarkable age is that the more complex the world around us becomes, the more simplicity we must seek in order to realize our financial goals.  Never underrate either the majesty of simplicity or its proven effectiveness as a long-term strategy for productive investing.  Simplicity, indeed, is the master key to financial success.”  John C. Bogle, Founder of Vanguard Mutual Fund Company

Too Good To Be True

Here’s the latest from the “News That’s Too Good To Be True” Department:

• Would you believe me if I told you that scientists have developed a new pill that will allow you to eat whatever you want, never exercise, and still maintain a toned and fit body?

• Would you believe me if I told you that scientists have developed a new machine that will allow you to learn while you sleep? You simply go to sleep wearing a comfortable, light-weight cap connected to the machine, and you wake up possessing whatever knowledge the machine was programmed to teach you.

• Would you believe me if I told you that there’s an investment strategy that a seven-year old could understand, will take you fifteen minutes of work per year, outperform 90 percent of finance professionals in the long run, and make you a millionaire over time?

The third bullet-point, although it sounds almost as unlikely as the first two, is actually true.  But who says it’s true?  Only William J. Bernstein, investment advisor and author of the classic investment book The Four Pillars of Investing. 

In fact, the third bullet point above is a direct quote from Bernstein’s great new booklet If You Can: How Millennials Can Get Rich Slowly.  Like the investment plan Bernstein suggests his booklet is cheap (is free cheap enough for you?) and simple (only 16 pages long).  The link on the title above will take you to Bernstein’s website where you can download a pdf copy of the booklet for free.  Simply click on the “acrobat” link under the title of the book.  Other versions are also available for either free or at a very reasonable price.  I highly recommend it.

If Bernstein is Right, How Come More People Don’t Know About It?

The next obvious question to ask is that, if Bernstein is right, and successful investing can really be as simple as he says, how come more people don’t know about it?  The answer is that a lot of people make a lot of money by keeping this a secret.  In fact, the entire investment industry (brokers, the financial media, and all types of investment advisors) thrive on convincing you that investing is too complicated for you to do yourself, and you need to pay them a lot of money to help you figure it out. 

Speaking of the financial media, which could get the truth out about the simplicity of successful investing if it wanted to, the book The Bogleheads’ Guide to Investing, states:

“The simplicity of investing creates a real problem for the investment media.  They’re in the business of selling investment information and advertising.  They have white space to fill on the air.  How on earth can they attract and hold an audience or advertisers if effective investing is so simple?  If they tell the public the truth, most of them will turn their attention to something more exciting….”

And so the simplicity of successful investing remains, for the most part, a well-kept secret.  Now that you are in on the secret, help spread the word.  Download Bernstein’s booklet and share it with others you think it might help.  If they follow Bernstein’s sound advice they will be forever grateful to you for sharing it. 

Principle

Over the course of time a simple, cheap investment plan that you can implement yourself will probably beat a complicated plan requiring professional advice and assistance. 

Application

So what is Bernstein’s plan that a seven-year-old can understand, will only take you fifteen minutes a year to implement, will outperform 90 percent of finance professionals, and will make you a millionaire over time?  As he explains in If You Can, the plan is:

• Save 15 percent of your income
• Put equal amounts into just three different mutual funds as follows:
  • A U.S. total stock market index fund
  • An international total stock market index fund
  • A U.S. total bond market index fund
• Rebalance annually to maintain an equal amount in each fund

That’s all there is to it.  While this isn’t the only simple plan that will work, and I will present some variations to it in subsequent posts, this is a great example that powerfully illustrates how simple successful investing can be. 

Action

• If you haven’t already, start preparing for the future by implementing Bernstein’s plan or one of the alternatives I will present in subsequent posts.  

• Spread the word about how simple successful investing can be by sharing Bernstein’s free e-book with others.