How We Think Investment Costs Work When I first started investing twenty years ago I had no clue what I was doing. I had, however, read enough to know that it was important to keep investment costs low. I remember looking at a list of mutual funds I was considering investing in. One of the…
An Investor with minimal curiosity will learn that the shortest and surest route to top-quartile performance is bottom-quartile expenses. – John C. Bogle, Vanguard founder and index fund pioneer The efficient market hypothesis (EMH) states that capital markets are highly efficient, and that any new information about a company’s stock is almost immediately reflected in…
Make the best of what is in your power, and take the rest as it happens. – Greek philosopher Epictetus (AD 55 to 135) Concern or Control? One of my favorite speakers and authors is Stephen R. Covey (1932 to 2012). In his wonderful book The Seven Habits of Highly Effective People Covey teaches that…
Gazelle Intensity Popular debt elimination evangelist Dave Ramsey teaches that, after setting aside $1,000 for emergencies, your only financial priority should be paying off all debt except your home mortgage. Everything else, including saving for retirement, should be put on hold until your debts are paid. Ramsey uses the term “gazelle intensity” to describe the…
We have been discussing the asset allocation decision, which in its simplest form consists of how much of your investments you should expose to the higher risks and potentially higher rewards of the stock market, and how much you should keep in safer investment such as bonds and cash. First, we established that this decision…
Now that you have determined how much risk you need to take, and how much risk is wise for you to take, the final step is determining how much risk you are willing to take. Some people are naturally adventurous. They seek out and thrive on risk. Others are naturally more cautious, avoiding risk when…
The second question you must answer according to Larry Swedroe’s investment risk framework, is, “How much risk is wise for me to take?” It could be that you need to take risk to reach your financial goals, but taking risk would not be wise. This would put you in the unfortunate position of not being able to…
You should also consider your need to take risk. Have you already saved enough? If so, why continue taking risk? Far too many investors fail to understand that the strategy to get rich (take risks) is entirely different from the strategy to stay rich (minimize risks, diversify the risks you take, and don’t spend too…
The fundamental law of investing is that there is no reward without risk. The corollary to this law is that your most important investment decision is how much risk to take. Definition of Asset Allocation How you divide your assets between safe and risky investments is known in investment literature as Asset Allocation. Popular investment…
The wisdom of diversification in money management, as encapsulated in the old proverb “don’t put all your eggs in one basket” is an idea that has been around for thousands of years. An ancient Jewish writing known as the Talmud, written between 1,200 BC and 500 AD, contains this advice: “Let every man divide his…
