Does Wise Investing Equal Index Investing?
- 29 Comment
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Passive investing is the simplest form of investing. That is the theme of a book by Larry e. Swedroe called Wise Investing Made Simple
The overriding theme of this book is that it is very difficult for investors to beat the market. In fact, in Swedroe’s mind it is simply impossible for an individual investor to select individual stocks in a manner that will consistently outperform the market. The key is the consistent part. Aside from the Warren Buffet’s of the world, most investors will have times where they may beat the market using an active strategy. However, over the long term the market will beat them. So if you can’t beat them then join them.
I think that Moolanomy summed up the book best with his paraphrasing of page 105′s material. The following three principles are what makes for wise investing in Larry’s mind:
- First, build a globally diversified portfolio to reduce the risk of having too many eggs in one basket. A good portfolio should have balanced mix of domestic and international stocks, small and large stocks, value and growth stocks, real estate, and bonds
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Second, efforts to outperform the market were unlikely to produce market-beating returns. Therefore, trying to minimize costs is more important than trying to outperform the market. This means invest in low-cost, no-load, and passively managed funds and ETFs (i.e., index funds and ETFs)
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Third, it is important to be a disciplined, long-term, buy-and-hold investor.
The emphasis on index funds certain was something that I took to heart, as I am an investor who enjoys selecting individual dividend growth stocks to add to my portfolio. I must admit that Larry did a fantastic job of convincing me that I may be playing a fools game. I recognize that index investing is an important strategy and I am focused on building my core portfolio around them. However, I still love the process of selecting individual stocks and will not sway from doing that in the future.
Since this book was given to me, I figure I needed to pay it forward. So, if you are interested in receiving a slightly used (some pages are dog-tagged and look like they have gotten wet – I read it on the beach), please leave a comment in the comments section below and I will randomly pick a winner on Friday February 29th.
29 Comments on this post
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Four Pillars said:
Count me in! Swedroe is a pretty sharp guy.
Try to clear the seaweed and sand off before mailing to me though…
Mike
February 24th, 2008 at 9:09 am -
Pinyo said:
Sounds like that would be a good balance. Certainly better than having 100% of your portfolio being hand-picked dividend paying stocks.
Good job with paying it forward. I love the concept.
February 24th, 2008 at 9:20 am -
Al said:
Sounds like a great offer. Swedroe is good!
February 24th, 2008 at 9:56 am -
Jasonr said:
I’m in! Thanks!
February 24th, 2008 at 10:14 am -
aquinon said:
I agree that finding a balance is probably the best way to go. I’m curious about his approach.
toss my name in the hat. I will not read it on the beach (I live in michigan, in a snowstorm is more likely), so it will be in good shape when its my turn to pay it forward.February 24th, 2008 at 10:45 am -
David de Souza said:
Put my name down too.
Thanks.
Dave
February 24th, 2008 at 11:17 am -
Brian said:
Count me in as well!
February 24th, 2008 at 11:47 am -
Sport11can said:
All the way from Canada… Sounds like a great book, I am in.
Promise I won’t use it for shin pads!February 24th, 2008 at 12:58 pm -
AngleEdge said:
I too started out with a focus on index investing, but over the past year have gotten back more and more into picking individual stocks (lately with the focus on dividend growth stocks). I think the advent of low-cost/free brokerage services like Zecco and others definitely helps the individual investor keeps costs low and allows one to slowly build positions in individual stocks or ETFs at good value points. I may eventually get tired of the amount of work I put into researching and tracking individual stocks and switch back to just investing in index funds, but for right now, I am enjoying it. I hope by focusing on dividend growth stocks and picking good entry points, that overtime I can beat the market. Only time will tell!
February 24th, 2008 at 12:58 pm -
Leading Edge Boomer said:
Balance and keeping your investments costs low! Sounds good to me. Please enter me into the draw for the book.
February 24th, 2008 at 3:58 pm -
Yang said:
This is my first vist to your blog. Good work! I’m really new to the dividend investing well am fascinated in it since it might be the best way to let me retire earlier. Will check your site regualarly.
Hope I have the luck. Count me on!
February 24th, 2008 at 6:14 pm -
David B. said:
I’m in, I’d love to read it.
February 24th, 2008 at 9:17 pm -
KK said:
Is it in PDF?
February 24th, 2008 at 9:17 pm -
Jon said:
Just started reading your blog, some excellent info. Thank you.
I’m also interested in the free book =)
Keep up the good work
February 25th, 2008 at 1:33 am -
Mark said:
I have been doing a lot of research (as in reading as many highly recommended investment books as I can get from the library and the odd one I purchased from the usual Christmas gift cards). At first I was very pro Dividends all the way but I had this nagging feeling in my brain that even if I diversified across multiple sectors with 10-12 dividend paying stocks that I still had to hit 10-12 stocks that would have a good aggregate return over the long run. This did not sit well.
So more research after those first few Dividends are where it is at books. I am currently finishing up “The Dick Davis Dividend” book and I can not say enough great things about it to do it justice. To boil his philosophy down: invest 80% in Passive index funds/ETFs and then the other 20% in Active instruments (such as stock picking for those of us that want to do some of our own research and play the market).
This makes a load of sense to me since you have that cushion of 80% which will be following the markets with their long term bias to upward gains. Then you get to strike out and try your hand at playing the market (because deep down I think we all want to try to beat the street).
I’d love to be added to the book give-away, as this one is on my list as well.
Thanks for a great blog.
February 25th, 2008 at 9:17 am -
Dividend growth investor said:
I like indexing, it’s one the many wonders of the world. Count me in!
February 25th, 2008 at 11:04 am -
Jesus said:
Count me in for the draw
February 25th, 2008 at 12:35 pm -
Mat said:
Love the blog count me in thanks!
February 25th, 2008 at 12:46 pm -
DanS said:
Please put my name in for the drawing.
Thanks for your work with the blog.
February 25th, 2008 at 3:55 pm -
stefan said:
Count me in!
February 25th, 2008 at 6:22 pm -
Canadian Dream said:
Free stuff! I’m in.
February 26th, 2008 at 6:42 am -
Mike said:
I like to keep things simple. Count me in on the drawing.
February 26th, 2008 at 2:36 pm -
Larry M said:
I enjoy your blog.
I agree with Larry Swedroe and with Paul Merriman of fundadvice.com.
I also can agree with Mark’s comments about Dick Davis new book The Dick Davis Dividend. It’s a great book and his belief of a 80-20 (passive-active) investment plan allows us value dividend stock pickers to have fun over the long term(hopefully).
I already have all of Swedroe’s books so you can exclude me from the draw.
February 26th, 2008 at 3:44 pm -
Joshua said:
In my very modest investments I have started with low cost index funds (TD e-series; I plan to switch to ETFs once I get a bit more critical mass), but the interesting thing for me is that I have learned that as much as I know I should be “investing” and not “speculating” there’s a part of me that enjoys the riskier bets, and I have needed to set up a small pool of money to satiate the part of me that just wants to gamble.
February 28th, 2008 at 8:04 am -
Yuriy said:
Thank you for the offer! Count me in.
February 28th, 2008 at 10:41 pm -
James Gramer said:
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March 3rd, 2008 at 9:09 am -
Rob Madrid said:
count me in as well, I’m not picky!
March 13th, 2008 at 4:16 pm
[...] off, last week I did a quick review of the book, Wise Investing Made Simple. In that post, I announced the I would be giving away the book to a commentator to the post. Today [...]
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