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John J. Brennan. More Straight Talk on Investing
Table of Contents
List of Illustrations
Guide
Pages
MORE STRAIGHT TALK ON INVESTING. LESSONS FOR A LIFETIME
Preface
Author's Note
Acknowledgments
1 Successful Investing Is Easier Than You Think
A Great Time to Be an Investor
Be Knowledgeable: Do Your Homework
Baseline Basics: Understanding the Asset Classes
Asset classes
Stocks
Bonds
Cash
Portfolio Pitfall: There Is No Free Lunch
Be Disciplined: Develop Good Habits
Baseline Basics: Saving, Savings, and Investing
Be Skeptical: Avoid Fads
Be Observant: Keep Learning About Investing
In a Nutshell
2 You Gotta Have Trust
Trust Yourself
Trust the Financial Markets
Portfolio Pitfall: Keeping Your Emotions in Check
Trust in Time
Trust Your Financial Partner
Get in the Game
In a Nutshell
3 A Map to Success: Hmm, Sounds Like a Plan
The Single Most Important Thing to Do
Think of Your Financial Needs as Imaginary Buckets
Saving for Short-Term Needs
Saving for College
Baseline Basics: Accounts for Saving for College
Saving for Retirement
Portfolio Pitfall: Be Alert to Low Default Rates
Baseline Basics: Accounts for Retirement Investing
Your Debt Plan
Are You Mortgaged to the Hilt?
Are You Carrying Credit Card Debt?
Are You Investing with Borrowed Money?
Are You Counting Your Chickens Before They Hatch?
Know What You Don't Know
In a Nutshell
4 Save More—Without Feeling the Pinch
Developing the Discipline of Saving
The Magic of Dollar-Cost Averaging
Portfolio Pitfall: Trying to Choose Time
How to Become a Super-Saver
Saving versus Investing
Setting Your Savings Priorities
One More Incentive to Start Saving Early
In a Nutshell
Notes
5 Hope for the Best—But Prepare for Something Less
When Inflation Rears Its Ugly Head
Future Investment Returns
Don't Count on Present Investment Conditions Continuing
The Problem with the Long-Term Averages
Scenario-Planning Tools
Not-So-Great Expectations
In a Nutshell
6 Balance and Diversification Help You Sleep at Night
Why Balance Really Works
Diversification Is Good for You—But Sometimes It Hurts
Baseline Basics: The Enduring Appeal of Balance
A Case Study
In a Nutshell
7 You Need a Personal Investment Policy Whether You're Starting with Zillions or Zip
Why You Should Care … a Lot
Kicking the Tires on Some Different Portfolio Models
Developing a Personal Investment Policy
Financial Situation
Baseline Basics: A Sample Personal Investment Policy
Financial Situation
Investment Objective
Time Horizon
Risk Tolerance
Target Asset Allocation
Asset Location
Savings Target/Hierarchy
Projected Return
Inflation Assumption
Glide Path
Liquidity
Other Considerations
Time Horizon
Risk Tolerance
The Role of Bonds
The Role of International Stocks
Portfolio Pitfall: Beware the Allure of Gold, Commodities, and Other Risky Investments
Asset Allocation Models for Retirement Investing
In a Nutshell
Note
8 Mutual Funds and Exchange-Traded Funds: The Easy Way to Diversify
Securities or Funds?
Baseline Basics: Exchange-Traded Funds Explained
How Funds Work
The Advantages of Funds
How You Make Money as a Fund Investor
Baseline Basics: Total Returns and Its Components
Caveats to Consider
In a Nutshell
9 How to Pick a Mutual Fund (and How Not To)
A Process for Constructing a Portfolio
Step 1: Stocks, Bonds, Cash? It's Time to Decide
Step 2: Where to Invest Within an Asset Class?
Money Market Funds
Bond Funds
Stock Funds
Baseline Basics: ESG Funds
Step 3: Actively Managed Funds, Index Funds, or Some of Each?
Portfolio Pitfall: Don't Buy a High-Cost Index Fund
Baseline Basics: The Major Market Indexes
Stock Indexes
Bond Indexes
Step 4: Evaluating a Fund
Baseline Basics: Reasons to Read the Prospectus
In a Nutshell
10 It's What You Keep That Counts
The Lowdown on Lower Costs
Costs: Are You Leaving Too Much on the Table?
Examine Fund Expense Ratios
Baseline Basics: Rules of Thumb on Expense Ratios
“But It's Just a Few Percentage Points …”
You Can Look It Up
Baseline Basics: Understanding Costs
Putting Costs in Perspective
Be Aware of Transaction Costs Paid by the Fund
Taxes Are Costs, Too
Resist the Temptation to Trade Frequently
Baseline Basics: Taxes and Mutual Funds
Choose Tax-Efficient Funds
Use Taxable and Tax-Advantaged Accounts Wisely
In a Nutshell
11 Risk: Give It the Gut Test
Your Investment Risk
Portfolio Pitfall: Don't Let Fear of Loss Keep You Out of the Market
Duration: A Risk Measure for Bonds
A Simple Way to Check a Fund's Past Volatility
The Gut Test
Baseline Basics: The Risk Monster Is a Many-Headed Beast
Measuring Your Risk Tolerance
Managing Investment Risk
In a Nutshell
12 Some Advice on Financial Advice
When to Seek Help
Assessing Your Needs for Advice
Finding the Right Financial Help
Assessing the Cost/Value Trade-Off of Advice
Making a Choice
In a Nutshell
13 Buy-and-Hold Really Works
Developing the Buy-and-Hold Habit
You Will Be Tempted to Abandon Your Buy-and-Hold Strategy
Why Frequent Trading Doesn't Work
The Unpredictability of the Financial Markets
The Cost Penalty
Why Market-Timing Doesn't Work
In a Nutshell
14 Time Is Everything
Make Time Your Ally
Time Is Your Ally
How to Make Up for Lost Time
In a Nutshell
15 Routine Maintenance for Your Portfolio
Your Personal Situation
Rebalancing a Portfolio
Why Rebalance? To Tame the Risk Monster
Portfolio Pitfall: Don't Forget Those Buckets When You Tune-Up Your Portfolio
When to Rebalance
The Tax Monster Joins the Risk Monster
Rebalancing Takes Discipline
Keep Things Simple
How to Clean Up a Messy Portfolio
In a Nutshell
Note
16 Stupid Math Tricks for Smart Investors
In a Nutshell
17 “It's a Mad, Mad, Mad, Mad World”
Speculative Bubbles
Tulipmania
A Modern Gold Rush
The Dot-com Bubble
Some Commonalities among Manias
How to Protect Yourself from Speculative Manias
In a Nutshell
18 Why You May Be Your Own Worst Enemy
Being Overconfident About Your Own Abilities
Allowing the Current Environment to Blind You to the Larger Context
Thinking You See a Pattern Where None Exists
Focusing Too Much on Short-Term Losses
Portfolio Pitfall: Smart People Can Do Dumb Things
Feeling Compelled to Do Something—Anything
Letting False Reference Points Distort Your View of Value
Remembering Things Selectively
How to Foil Your Own Worst Enemy
Portfolio Pitfall: Not a Seller, But a Buyer
What's the Lesson?
In a Nutshell
19 Bear Markets Will Test Your Resolve
Some Background on Bear Markets
How Does a Bear Market Feel? Very Scary
The Lesson of Balance and Diversification (Again)
Bearing a Bear Market?
Tips for Enduring Bear Markets
Baseline Basics: The Advantages of Buying “Hamburger” in a Sideways Market
What Not to Do in a Bear Market
In a Nutshell
20 Navigating Distractions to Reach Your Destination
Trust the Truths You Already Know
Recognize That Everyone Has an Agenda
Be Wary of Market Predictions
Be Skeptical of Hype About Hot Performance
Be Suspicious of “Experts”
What Makes Headlines Is Not Always New
Beware the “New, New Thing”
In a Nutshell
21 Is the “Smart Money” Smart? Yes, but…
An Introduction to Alternative Investments
In a Nutshell
22 Regrets? I've Had a Few
23 Getting to Boca
Destination Boca
You Can't Eat Relative Performance
How to Make Sense of Relative Performance Information
Your Fund's Performance Isn't the Same as Your Investment Performance
My Dad's in Boca
In a Nutshell
Afterword
Postscript. Where Did My Income Go?
AppendixInvestment Terms
Active Management
After-tax Returns
Aggressive Growth Fund
Asset Allocation
Asset Classes
Back-end Load
Balanced Fund
Blend Fund
Bonds
Capital Gains Distribution
Cash Investments
Compounding
Credit Risk
Diversification
Dividend
Dollar-cost Averaging
Donor-advised Fund
Duration
Education Savings Account (ESA)
Environmental, Social, and Governance (ESG) Fund
Exchange-traded Fund (ETF)
Expense Ratio
Factor Fund
Financial Advisor
Front-end Load
Growth Fund
High-yield Bond
Income
Income Risk
Index
Index Fund
Individual Retirement Account (IRA)
Inflation
Interest Rate Risk
Investment Horizon
Investment Objective
Load Fund
Management Fee
Market Capitalization
Market Risk
Money Market Fund
Municipal Bonds
Mutual Fund
Net Asset Value (NAV)
No-load Fund
Portfolio
Portfolio Manager
Principal
Prospectus
Redemption Fee
Robo-advisor
Stocks
Target-date Fund
Target-risk Funds
Tax-exempt Bonds
Total Return
Treasury Inflation-protected Securities
Turnover Rate
Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
Value Fund
Variable Annuity
Volatility
Yield
12b-1 Fee
529 College Savings Plan
Index
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