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A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan
A simple guide to a smarter strategy for the individual investor A Wealth of Common Sense sheds a refreshing light on investing, and shows you how a simplicity-based framework can lead to better investment decisions. The financial market is a complex system, but that doesn't mean it requires a complex strategy; in fact, this false premise is the driving force behind many investors' market "mistakes." Information is important, but understanding and perspective are the keys to better decision-making. This book describes the proper way to view the markets and your portfolio, and show you the simple strategies that make investing more profitable, less confusing, and less time-consuming. Without the burden of short-term performance benchmarks, individual investors have the advantage of focusing on the long view, and the freedom to construct the kind of portfolio that will serve their investment goals best. This book proves how complex strategies essentially waste these advantages, and provides an alternative game plan for those ready to simplify.
Complexity is often used as a mechanism for talking investors into unnecessary purchases, when all most need is a deeper understanding of conventional options. This book explains which issues you actually should pay attention to, and which ones are simply used for an illusion of intelligence and control.
Keep up with—or beat—professional money managers Exploit stock market volatility to your utmost advantage Learn where advisors and consultants fit into smart strategy Build a portfolio that makes sense for your particular situation You don't have to outsmart the market if you can simply outperform it. Cut through the confusion and noise and focus on what actually matters. A Wealth of Common Sense clears the air, and gives you the insight you need to become a smarter, more successful investor.
Complexity is often used as a mechanism for talking investors into unnecessary purchases, when all most need is a deeper understanding of conventional options. This book explains which issues you actually should pay attention to, and which ones are simply used for an illusion of intelligence and control.
Keep up with—or beat—professional money managers Exploit stock market volatility to your utmost advantage Learn where advisors and consultants fit into smart strategy Build a portfolio that makes sense for your particular situation You don't have to outsmart the market if you can simply outperform it. Cut through the confusion and noise and focus on what actually matters. A Wealth of Common Sense clears the air, and gives you the insight you need to become a smarter, more successful investor.
184 pages, Kindle Edition
First published June 29, 2015
143 people are currently reading
1862 people want to read
About the author
Ben Carlson
60 books53 followersBen Carson is the Director of Institutional Asset Management at Ritholtz Wealth Management. The firm creates detailed investment plans and manage portfolios for institutions and individuals to help them achieve their goals.
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Displaying 1 - 30 of 47 reviews
December 26, 2022
A Wealth of Common Sense by Ben Carlson is a very good book for someone starting on their investment journey, especially in US. There is a general tendency to ignore common sense when it comes to investing. A lot of people think that complex financial products are better. And this is when they start losing money. This book is not for someone who wants to be an extraordinary investor. Carson provides good basics of personal finance and a simple path to building wealth. Setting up a systematic process imposes financial discipline. He says that asset allocation is by far the most important portfolio decision you will make. And as all seasoned investors know, there’s no perfect portfolio, except in hindsight.
October 6, 2017
If you are fan of Benjamin Graham, but want to avoid financial jargon, this book is a good balance. I read this book to attempt to find a good book to give my students to prepare for their financial future. This is a book for people who likely already invest in “target date” funds that want to take the next step into simple index allocations. It will help you understand the myths of the market and rules to base your decisions on.
Summary: you pick a sensible allocation and stick to it over a long time horizon. Then, when you want to retire, reevaluate your allocation.
Summary: you pick a sensible allocation and stick to it over a long time horizon. Then, when you want to retire, reevaluate your allocation.
November 27, 2022
This overall was a great book. Alot of the principles are foundational around what is shared within the investing realm, especially around some of the titans such was Warren, monish, and Graham. The biggest takeaway is having a plan and sticking to it. There is so much as well in this book but if I had to distill it down, it would have a plan and stick to it. Of course adjust and adapt but be disciplined in your approach and dont sway because of market volatility or human emotions
August 20, 2018
Financial markets are immensely complex. They are not rocket science, they are much more complex than that since they incorporate feedback loops of people’s ever changing and often irrational emotions. It’s easy to think that to succeed in such an environment the strategy to use must be equally complex. Nothing could be more wrong. Complexity is best handled by the simplicity of a few rules. Ben Carlson who is a portfolio manager at Ritholtz Wealth Management and a successful financial blogger on asset allocation expands on the theme in this book. The target audiences are private investors and financial planners but there are insights for everyone.
A Wealth of Common Sense truly provides a wealth of important thoughts on investing and the author urges us all to have a plan for how to invest. “Without a plan volatility and uncertainty will eat you alive”. In creating a plan it’s important to realize that you have to take risk and endure pain to earn good long-term returns. In fact, the largest risk might be to not take enough risk to allow compounding effects over time – the author is clearly biased towards the stock market. At the same time there should be diversification since markets cannot be timed and most investors cannot endure the full effects of the crashes that come now and then. Diversification is an emotional hedge and allows rebalancing into cheaper assets.
A plan should be part of a system to automate productive behavior and long-term common sense. The plan should build on an investor’s beliefs about the market, the investor must be able to understand it and its risks, it must suit the personality of the investor because if it doesn’t it isn’t practically feasible. If the plan isn’t psychologically endurable in bad times it will be abandoned and it doesn’t matter how good the plan was on paper, it will now instead be destroying significant value. As the author puts it “true risk is what is irreversible” - an abandoned strategy risks locking in losses at the absolute worst possible time. While it might not be possible to time market crashes the investment plan should prepare for how any situation should be handled. Most will not be level headed without setting out a course of action prior to the chaos.
The subtitle to the book is Why Simplicity Trumps Complexity in Any Investment Plan. Given this the topic of simplicity vs. complexity in my view receives relatively little attention. Carlson rightly points to the huge incentives for complexity. Those who sell financial products can charge much higher fees for complex financial constructions than for simple ones. The buyers in turn feel smart and sophisticated when buying them, paying the fees. A quote from Nassim Taleb gets to illustrate the problem “The simpler, the better. Complications lead to multiplicative chains of unanticipated effects.” When investing in complex financial constructions the investor will be trading volatility risks that will be passing, for a type of financial market functionality risk that unfortunately introduces a probability of making losses permanent.
The author’s insights aren’t really new and he has obvious intellectual mentors in for example John Bogle, Peter Bernstein and Charlie Ellis, but this doesn’t makes the thoughts less important and Carlson has a knack for catchy wordings that bring forward the theoretical and practical wisdom he has accumulated in a very effective way. For all the important insights I’d be glad to give the highest grade but in my meaning the book lacks direction. Some additional structure would have been needed for the reader to clearly see where the author is leading him.
The peddlers of complexity who live of the high fees they generate will claim that simple solutions like rebalancing to a 60/40 allocation or “buy and hold” strategies with regards to equity index portfolios have failed. This is simply not true, they have faired very well over time.
A Wealth of Common Sense truly provides a wealth of important thoughts on investing and the author urges us all to have a plan for how to invest. “Without a plan volatility and uncertainty will eat you alive”. In creating a plan it’s important to realize that you have to take risk and endure pain to earn good long-term returns. In fact, the largest risk might be to not take enough risk to allow compounding effects over time – the author is clearly biased towards the stock market. At the same time there should be diversification since markets cannot be timed and most investors cannot endure the full effects of the crashes that come now and then. Diversification is an emotional hedge and allows rebalancing into cheaper assets.
A plan should be part of a system to automate productive behavior and long-term common sense. The plan should build on an investor’s beliefs about the market, the investor must be able to understand it and its risks, it must suit the personality of the investor because if it doesn’t it isn’t practically feasible. If the plan isn’t psychologically endurable in bad times it will be abandoned and it doesn’t matter how good the plan was on paper, it will now instead be destroying significant value. As the author puts it “true risk is what is irreversible” - an abandoned strategy risks locking in losses at the absolute worst possible time. While it might not be possible to time market crashes the investment plan should prepare for how any situation should be handled. Most will not be level headed without setting out a course of action prior to the chaos.
The subtitle to the book is Why Simplicity Trumps Complexity in Any Investment Plan. Given this the topic of simplicity vs. complexity in my view receives relatively little attention. Carlson rightly points to the huge incentives for complexity. Those who sell financial products can charge much higher fees for complex financial constructions than for simple ones. The buyers in turn feel smart and sophisticated when buying them, paying the fees. A quote from Nassim Taleb gets to illustrate the problem “The simpler, the better. Complications lead to multiplicative chains of unanticipated effects.” When investing in complex financial constructions the investor will be trading volatility risks that will be passing, for a type of financial market functionality risk that unfortunately introduces a probability of making losses permanent.
The author’s insights aren’t really new and he has obvious intellectual mentors in for example John Bogle, Peter Bernstein and Charlie Ellis, but this doesn’t makes the thoughts less important and Carlson has a knack for catchy wordings that bring forward the theoretical and practical wisdom he has accumulated in a very effective way. For all the important insights I’d be glad to give the highest grade but in my meaning the book lacks direction. Some additional structure would have been needed for the reader to clearly see where the author is leading him.
The peddlers of complexity who live of the high fees they generate will claim that simple solutions like rebalancing to a 60/40 allocation or “buy and hold” strategies with regards to equity index portfolios have failed. This is simply not true, they have faired very well over time.
March 26, 2023
The work of this author, who is also an investment advisor, is a good read, written against his investment philosophy. While stock books tend to be all about how to select individual stocks, this book is about how to develop an investment strategy, how to build a portfolio, and about human psychology in implementing an investment strategy. The author's conclusion is simple, concise, long-term investing.
What I personally found particularly interesting was the list of stock returns by region, citing data from 1970 on international diversification.
The performance of U.S. stocks was strong before and after Corona. However, the U.S. economy, the world leader, has been shaken by a surplus of money due to monetary easing after the Corona and the resulting inflationary interest rate hikes.
However, it is only recently that U.S. equities have been delivering superior returns, and until then, there were times when they did not perform well. I tend to take a myopic view of investments, but reading this book reminded me of the importance of taking a long-term perspective.
What I personally found particularly interesting was the list of stock returns by region, citing data from 1970 on international diversification.
The performance of U.S. stocks was strong before and after Corona. However, the U.S. economy, the world leader, has been shaken by a surplus of money due to monetary easing after the Corona and the resulting inflationary interest rate hikes.
However, it is only recently that U.S. equities have been delivering superior returns, and until then, there were times when they did not perform well. I tend to take a myopic view of investments, but reading this book reminded me of the importance of taking a long-term perspective.
December 6, 2023
There were several components of this book that I greatly appreciated. It didn't do much to add to the body of knowledge I've gathered from other books on personal finance, but what I appreciated was the focus on an investment plan. The recent focus in personal finance on financial planning (which is very good) seems to move so far away from investments at all that we fail to recognize it is still an important piece of the puzzle.
I am most grateful for the need to have an investment PLAN and the conviction to stick with it.
I am most grateful for the need to have an investment PLAN and the conviction to stick with it.
August 28, 2024
It’s quite a dry book to read, but the information is valuable and would recommend everyone to pick it up. The price of this book is a bit high, but hopefully you can find one in your local library. If you’re short on time, just read the conclusion (Chapter 9). If you have mid-short time, read through the summary of every chapter. It has good tips here and there and definitely worth reading the whole book if you can allocate more of your time.
March 20, 2019
What was i expecting
Bought a book on commonsense, got a bunch of platitudes. What was i expecting. I guess for someone with 0 knowledge this is a good starting point. Buy this book, you'll probably give it a 5. For me I wanted more of a step by step guide. Concrete advice. Instead i got told how to handle market settings and mood swings.
Bought a book on commonsense, got a bunch of platitudes. What was i expecting. I guess for someone with 0 knowledge this is a good starting point. Buy this book, you'll probably give it a 5. For me I wanted more of a step by step guide. Concrete advice. Instead i got told how to handle market settings and mood swings.
August 13, 2023
Excellent
Ben - appreciate your time and efforts in sharing this book. A great summary for readers to keep it simple in focusing on common sense basics to build wealth through their long-term investing plan. Readers will have homework to do during and after reading to get ducks in a row, but what you write will help any investor improve. Thank you.
Ben - appreciate your time and efforts in sharing this book. A great summary for readers to keep it simple in focusing on common sense basics to build wealth through their long-term investing plan. Readers will have homework to do during and after reading to get ducks in a row, but what you write will help any investor improve. Thank you.
February 11, 2018
Good for the beginner
This is a very good book for the beginner investor. There is a ton of very sound advice in this book and shows a very simple path to building wealth using modern funds.
This is a very good book for the beginner investor. There is a ton of very sound advice in this book and shows a very simple path to building wealth using modern funds.
November 17, 2018
Great book for those in the financial services industry. It is meant for clients, but it can be best used as a guide for one’s practice. I had a lot of highlights and will re-read again in the next year.
January 4, 2021
Check list to behave in market
A great book on behaviour economics and finance.
It explains the attributes which can be controlled by an investor.
If one thing from this book I would like to take with me to the grave will be to let time work in my favor.
A great book on behaviour economics and finance.
It explains the attributes which can be controlled by an investor.
If one thing from this book I would like to take with me to the grave will be to let time work in my favor.
February 7, 2022
A simple and effective overview of core financial lessons: long term growth, the myth of beating the market, diversification, asset allocation, and dollar cost averaging.
I particularly liked the advice about the value of financial advisors (it's not that they're the smartest stock pickers).
I particularly liked the advice about the value of financial advisors (it's not that they're the smartest stock pickers).
February 15, 2022
Easily one of the best financial books I’ve read.
Competent. Concise. Crafted. Ben does a brilliant job present practical principles that are backed by historical data
Top 5 investing books I’ve come across. Highly recommend
Competent. Concise. Crafted. Ben does a brilliant job present practical principles that are backed by historical data
Top 5 investing books I’ve come across. Highly recommend
February 3, 2018
If you know anything about investing, just read the conclusion, or simply invest in a balanced mix of stock and bond index funds. It is common sense. It doesn’t need a book.
July 27, 2018
One of the best books on investing, I ever read.
August 17, 2018
Not a lot new here...
December 4, 2018
Pretty basic information, good refresher if you're feeling stuck or in a rut financially, but nothing really blew my mind.
June 4, 2019
A nice introduction into the finance planning world and a truth bath for everyone trying to get rich quickly. Recommended
March 31, 2020
Nice read
It's a good book that covers most of the basics of investing and provides a nice all round view so that you cna define you own approach.
It's a good book that covers most of the basics of investing and provides a nice all round view so that you cna define you own approach.
November 19, 2020
Interesting read on personal investment management
Down to earth investment advisory book explained every nut and bolt of investment in a lucid way for easy reach of common man.
Down to earth investment advisory book explained every nut and bolt of investment in a lucid way for easy reach of common man.
Read
November 22, 2020Too basic for me.
December 3, 2020
Amazing book. Clear and level-headed.
April 23, 2021
Great book to read for beginner investors. The only downside is that I wish it was written 3-4 years later, as ETF's have become even more mainstream, as well as zero-commission brokerages.
June 4, 2021
Useful insights for someone want to learn to invest for a longterm
June 5, 2022
I would highly suggest this book as a starting point for those want to learn about investing and fund management myths.
November 16, 2022
Great book and easy read. Very educational and all things can be implemented for any financial advisor. This is a good framework to follow. It is also good for all DIY investors.
August 12, 2023
very good book. Thoroughly enjoyed reading it. recommended for everyone
November 23, 2023
Great work on basic common sense required in the financial markets. One should read such books time and again just to stay on course in this noisy world and avoid distractions.
April 14, 2024
This is very sound investment advice for 99% of people. Every young person should read it.
Displaying 1 - 30 of 47 reviews