Investing Lessons This final installment of the 4 Days of Christmas Investment Reading ends with a link to a short blog post written by Ben Carlson in his “Wealth of Common Sense” blog.  I believe this blog brings together the lessons of the prior 3 readings: beware of those who earn income from the sale of investments,  even brilliant men don’t get markets right, pick index funds.

In this particular blog from February 29, 2016, Ben compares a simple 3 mutual fund Vanguard portfolio to the portfolios of college endowment funds. As Ben states:

“Endowment funds are constantly looking for the best money managers — utilizing both the public and private markets — to find the best investment opportunities. They’re well-staffed and well-educated. They have access to the best and brightest minds in finance and are able to invest in funds that are reserved only for those with many millions of dollars.”

What he finds is:

“Vanguard beat the average over the past 5 years for every endowment size and came up just shy of the $1 billion and over group over 10 years while besting the rest of the group averages. Think about these results for a minute — these endowment funds hire the biggest investment consultants, have huge investment committees, connections with alumni at some of the best money managers in the world and fully-staffed investment offices in many cases. All that work, all of those due diligence trips, all of those extra fees paid to money managers and the majority of these funds still couldn’t beat a low-cost Vanguard index portfolio that was simply rebalanced once a year.”

The fact is the comparison did not have to use Vanguard funds, it could have used total market index funds from Fidelity or Schwab or Blackrock.  Of course, if he didn’t use Vanguard he could not have titled the blog Bogle vs. Goliath (John Bogle is the founder of Vanguard). The point is: An investor doesn’t need to have a complicated strategy to do well.

The takeaway from this blog:

  1. Simple portfolios are all most investors need.
  2. The 3 fund portfolio was a buy and hold portfolio – there was no market timing involved.
  3. There was annual rebalancing which maintains the allocation and forces a buy low sell high discipline.
  4. Fees were low.
  5. Seems simple, but this strategy wont work if an investor tries to deviate. This is where an advisor is most valuable. Your advisor should:  align your investing interest with your need, he/she should understand markets, they should be your anchor when you want to panic and sell low and buy high and finally they should work to minimize your investing and tax expenses.

Ben’s blog:

Bogle vs. Goliath