The Elements of Investing Hardcover – Dec 14 2009
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From the Inside Flap
In his classic book The Elements of Style, Professor William Strunk Jr. whittled down the art of powerful writing to a few basic rules. Forty years later, E.B. White initiated a revision, and thus The Elements of Style became known as Strunk & White. Following this same format, authors Charles Ellis and Burton Malkiel, two of the investment world's greatest thinkers, have combined their talents to produce The Elements of Investinga short, straight-talking book about investing and saving that will put you on a path towards a lifetime of financial success.
The Elements of Investing lays to rest the popular shibboleths that undergird the hyperactive trading of the average investor. In it, Malkiel and Ellis skillfully focus their message to address the essentials and offer a set of simple, but powerful thoughts on how to avoid Mr. Market and his "loser's game," and instead enjoy the "winner's game" approach to investing.
All the investment rules and principles you need to know are herewith clear advice on how to follow them. In just two hours of reading time, you will learn all you need to know to be truly successful in investing. Divided into five essential elements of investing, this little book packs a big message that can help secure your financial future all the way through retirement. Topics touched upon include:
Diversifying broadly over different types of securities with low-cost "total market" index funds and different asset typesand why this is important
Focusing on the long term instead of following market fluctuations that are likely to lead to costly investing mistakes
Using employer-sponsored plans to supercharge your savings and minimize your taxes
And much, much more
A disciplined approach to investing, complemented by understanding, is all you need to enjoy success. This practical guide explains what you really need to know and puts you on the right course for long-term success through all kinds of markets.
From the Back Cover
Praise for The Elements Of Investing
"These noted authors have distilled all you need to know about investing into a very small package. The best time to read this book is when you turn eighteen (or maybe thirteen) and every year thereafter."
—Harry Markowitz, Nobel Laureate in Economics 1990
"Struggling to find money to save? Befuddled by the bewildering array of investment choices? As you venture into the financial markets for the first time, it's helpful to have a trusted guide—and, in Charley Ellis and Burt Malkiel, you have two of the finest."
—Jonathan Clements, author of The Little Book of Main Street Money
"No one knows more about investing than Charley Ellis and Burt Malkiel and no one has written a better investment guide. These are the best basic rules of investing by two of the world's greatest financial thinkers."
—Consuelo Mack, Anchor and Managing Editor, Consuelo Mack WealthTrack
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Top Customer Reviews
Yes, there are outliers who are amazingly good at picking stocks and make insane returns. Just the same as your uncle who's been smoking 3 packs a day and still doesn't have cancer at age 75. This is not this book's point though. The author explains why it doesn't work for 99% of the people and why you'd be better off buying indexes or why you shouldn't listen to anything your bank's stock broker has to say about investments. The author makes a very strong case with ample supporting research.
Check the reviews on amazon.com if you're not convinced.
Most Helpful Customer Reviews on Amazon.com (beta)
The authors' do say that the book will help 90% of all investors, with the remaining 10% of investors seeking professional help with complicated situations.
All around very good book and a quick read. Its good for those relatively new to investing because they give personal finance advice also, and the book is also good for experienced investors for their expert advice regarding investing after the 2008/early 2009 stock market crash.
I highly recommend the book.
Right off the bat, Malkiel and Ellis admonish readers to start saving as early as possible and continue saving regularly throughout their lives. Granted, in a runaway consumerist culture like ours, characterized by its easy credit and debt-addicted millions, this task is so often easier said than done. But a prudent, evenhanded approach to spending and saving is possible--and Malkiel and Ellis show you how with smart suggestions that range from the banal, to the downright devious. The real plus to becoming a habitual saver, the authors explain, is that it helps you keep your real priorities in perspective. According to Malkiel and Ellis, your number-one priority, along with that of every other, gainfully employed, taxpaying American, should be to gradually grow your net worth so that your safety net's intact when your finally reach retirement age. Think of saving, they say, as investing in your future self!
Next, Malkiel and Ellis explore some innovative ways to grow your asset pool, focusing specifically on index funds because they are affordable, intelligently managed and because their unique formulations allow for risk to parsed out over a wide, representative swatch of the market. The authors inform readers about various other index products they may not have considered before, including index bonds and international index funds.
Malkiel and Ellis use statistics and compelling anecdotal evidence to reiterate the time-honored benefits of diversification for a new generation of investors. The authors emphasize the singular importance of diversifying across asset classes (stocks, bonds, money market instruments, commodities, etc.), across markets and over time. They explain how having a diversified portfolio gives the savvy investor a leg up as the market undergoes the upsetting process of rebalancing in the wake of a serious stumble like the one which followed the housing bubble burst of last spring.
In a final, bonus section, Malkiel and Ellis offer an insightfully rendered and detailed menu of IRA's and other tax-deferred, savings options available to investors.
The Elements of Investing is a veritable goldmine of investing wisdom backed by two of the most trusted names in the investment industry. Malkiel and Ellis' clear goal is to inspire readers to believe in their basic competency as investors and to chase their dream of financial independence and security!
For those interested in further, reliable reading on the subjects of developing good money habits, investing and personal finance, check out Thomas C. Scott's Fasten Your Financial Seatbelt: What A Fatal Plane Crash Taught Me About Retirement Planning and John E. Girouard's The Ten Truths of Wealth Creation.
1. Save regularly and start early.
2. Use company- and government-sponsored retirement plans to supercharge your savings and minimize your taxes.
3. Diversify broadly over different securities with low-cost "total market" index funds and different asset types.
4. Rebalance annually to the asset mix that's right for you.
5. Stay the course and ignore market fluctuations; they are likely to lead to serious and costly investing mistakes. Focus on the long term.
I think point 4 is way overstated, however. I would rebalance every ten years, or maybe even twenty years, unless there is a real reason for doing so. Rebalancing is costly.
Here is an example of the savings from using low-cost mutual funds (point 3 above). Suppose you put $1000 every year for 30 years into stocks. The average rate of return, historically, is about 8.6%, so if there are not brokers' fees, you would have $138,420 at the end of 30 years. With yearly brokers' fees of 1.15% (the industry average), you end up with $103,890 after 30 years, which means the brokers get 25% of the total. Moreover, had you invested in Treasury bills for the same period, you would have earned about $55,000, so the total increase in your wealth from using the broker is $103,420 - $55,000 = $48,420. of which the broker gets $34,530, or 70% of the net gain from using the broker.
When you buy domestic index mutual funds, you need never pay more than one fifth of one percent in overhead per year. International mutual funds, you will have to violate this rule, however. At this rate, after 30 years you will have $134,447 and the broker will earn $3,972, or about 5% of the net gain from using the broker.
Don't buy only index stocks. Also index bond funds.
Anyone who tells you he can beat the market without being an expert is a liar or a fool. Even an expert can only beat the market by a tiny bit with "inside information" and an understanding of market dynamics.
Malkiel and Ellis tell it all. Give this book to your parents if you want to inherit in your old age, and to your children if you want them not living with you in their middle-fourties.
a worthwhile investment of my time . . . such was the case the THE ELEMENTS
OF INVESTING by Burton G. Malkiel and Charles D. Ellis, in which the point was
made to save regularly and start early.
The authors then convinced me of how powerful this can be via the example
of Ben Franklin:
* He gave $5,000 to both Philadelphia and Boston and told both cities to
invest this money wisely. They could then spend half of what has been
saved 100 years later, and the other half 200 years later on public works projects.
Turns out that after 100 years, Philadelphia and Boston got $500,000 to spend and
after 200 years, each city got to spend $20 million!
Everything from then on just added to my appreciation of this small, oh-so-powerful
book on investing . . . I learned much more than I thought I already know
about such other principles as these: Use company- and government sponsored
plants to supercharge your savings and minimize your taxes; Diversify broadly
over different securities with low-cost "total market" index funds and different
asset types; Rebalance annually to the asset mix that's right for you; and
Stay the course and ignore market fluctuations.
Among the other tidbits I picked up were these:
* Never pay more than 1/5 of one percent in overhead per year when you buy
* Past performance is not a goo indication of future performance. What is a good indicator
are the fees. The higher the fees, the lower the return.
* Brokers have one priority: To make money for themselves. Their goal is not to
make money for you,but from you.
* A broker has one goal: To have you take action. Any action.
* Annuities have one big advantage: You won't outlive your money.
This is a particularly good book for beginning investors, so if you have any
children or grandchildren in these categories, choose this as an ideal