Does Wise Investing Equal Index Investing?

Written by The Dividend Guy on February 24, 2008

Wise Investing Made Simple

Passive investing is the simplest form of investing. That is the theme of a book by Larry e. Swedroe called Wise Investing Made Simple that I was fortunate to receive during a giveaway by Moolanomy. It took me awhile, but I finally made it was able to sit down and read the book. Note: Make sure you read to the end of the post because I am going to be giving the book away!

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
    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)
    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.


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29 Comments so far

  1. Four Pillars February 24, 2008 9:09 am

    Count me in! Swedroe is a pretty sharp guy.

    Try to clear the seaweed and sand off before mailing to me though… :)

    Mike

  2. Pinyo February 24, 2008 9:20 am

    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.

  3. Al February 24, 2008 9:56 am

    Sounds like a great offer. Swedroe is good!

  4. Jasonr February 24, 2008 10:14 am

    I’m in! Thanks!

  5. aquinon February 24, 2008 10:45 am

    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.

  6. David de Souza February 24, 2008 11:17 am

    Put my name down too.

    Thanks.

    Dave

  7. Brian February 24, 2008 11:47 am

    Count me in as well!

  8. Sport11can February 24, 2008 12:58 pm

    All the way from Canada… Sounds like a great book, I am in.
    Promise I won’t use it for shin pads!

  9. AngleEdge February 24, 2008 12:58 pm

    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!

  10. Leading Edge Boomer February 24, 2008 3:58 pm

    Balance and keeping your investments costs low! Sounds good to me. Please enter me into the draw for the book.

  11. Yang February 24, 2008 6:14 pm

    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!

  12. David B. February 24, 2008 9:17 pm

    I’m in, I’d love to read it.

  13. KK February 24, 2008 9:17 pm

    Is it in PDF?

  14. Jon February 25, 2008 1:33 am

    Just started reading your blog, some excellent info. Thank you.

    I’m also interested in the free book =)

    Keep up the good work

  15. Mark February 25, 2008 9:17 am

    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.

  16. Dividend growth investor February 25, 2008 11:04 am

    I like indexing, it’s one the many wonders of the world. Count me in!

  17. Jesus February 25, 2008 12:35 pm

    Count me in for the draw

  18. Mat February 25, 2008 12:46 pm

    Love the blog count me in thanks!

  19. DanS February 25, 2008 3:55 pm

    Please put my name in for the drawing.

    Thanks for your work with the blog.

  20. stefan February 25, 2008 6:22 pm

    Count me in!

  21. Canadian Dream February 26, 2008 6:42 am

    Free stuff! I’m in.

  22. Mike February 26, 2008 2:36 pm

    I like to keep things simple. Count me in on the drawing.

  23. Larry M February 26, 2008 3:44 pm

    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.

  24. Joshua February 28, 2008 8:04 am

    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.

  25. Yuriy February 28, 2008 10:41 pm

    Thank you for the offer! Count me in.

  26. Winner of Wise Investing and Weekly Roundup » The Dividend Guy Blog February 29, 2008 9:32 am

    […] 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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    The global market is growing at an incredible pace. The global currencies are quickly working on catching up with the rest of the world. Take advantage of this growth by working with Forex. Learn to trade Forex with free forex tips. Thanks, James.

  28. Rob Madrid March 13, 2008 4:16 pm

    count me in as well, I’m not picky!

  29. Internet Investing May 27, 2008 12:12 am

    Internet Investing…

    To improve the probability of long term investing success investors should seek a fully documented investment tool to improve their decision making. While their is never a guarantee of success, working with a validated process increases the prospects …

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