More on this book
Community
Kindle Notes & Highlights
by
J.L. Collins
Started reading
March 13, 2022
index fund
Your brain tends to shut down on the subject with the vague hope it will all resolve itself in some magical way and in the magical time of later. Living with debt becomes hardwired in your financial attitudes, habits and values.
More than 5%, pay it off ASAP.
Better to adapt yourself and your attitudes to the numbers than to adapt the strategies to your psychological comfort levels.
seek the least house to meet your needs rather than the most house you can technically afford.
Houses are an expensive indulgence, not an investment.
In the same time period, a 4-year state school college education went from $4,800 to $160,000. A 33-fold increase.
Moreover, one of the more unfortunate results of spiraling college costs and debt is the way it has warped the very concept of higher education. Rather than the pursuit of learning and culture, it has become the pursuit of job training in an effort to secure employment that will justify the astounding cost and debt incurred.
There are many things money can buy, but the most valuable of all is freedom. Freedom to do what you want and to work for whom you respect.
Spend less than you earn—invest the surplus—avoid debt
Vanguard’s Total Stock Market Index Fund)
Stop thinking about what your money can buy. Start thinking about what your money can earn.
“Opportunity cost” is simply what you give up when you commit your money to one thing (like a car) over another (like an investment), and it’s easy to quantify.
When the share price of one of his businesses drops, what he knows on a deep emotional level is that he still owns precisely the same amount of that company. As long as the company is sound, the fluctuations in its stock price are fairly inconsequential. They will rise and fall in the short term, but good companies earn real money along the way and in doing so their value rises relentlessly over time.
And that includes 2000-2009, one of the all-time worst stretches in market history capped off by a crash second only to the Great Depression.
“Should you invest in stocks at all?” Until you can come to terms with the harsh facts above, the answer is no. Until you can be absolutely certain that you can watch your wealth get cut in half and still stay the course, the answer is no. Until you are comfortable with the risks that come with the rewards you seek, the answer is no. In the end, only you can decide.
“buy and hold investing
This means you must recognize the counterproductive psychology that causes bad investment decisions—such as panic selling—and correct it in yourself.
Everybody makes money when the market is rising. But what determines whether it will make you wealthy or leave you bleeding on the side of the road is what you do during the times it is collapsing.
The stock market is made up of all the companies that are publicly traded.
Today the DJIA is comprised of 30 large American companies.
CRSP U.S. Total Market Index.
it is an index of virtually every publicly traded company in the U.S.
the S&P 500 index, allowing investors to own the largest 500 or so companies in the U.S. in one low-cost fund.
Companies routinely fade away and are replaced with new blood. The same is true of VTSAX.
This process of the new replacing the dead and dying is what makes the market (and VTSAX as its proxy) self-cleansing. But note, this only works with broad-based index funds.
index funds
“Past results are not a guarantee of future performance.”
It is the most ignored sentence in the whole document. It is also the most accurate.
When you look at the daily price of a given stock, it is very hard to know how much is foam.
Never buy stocks on margin.
Ironically, a crash at the beginning of your investing life is a gift.
Hyperinflation is very bad news—every bit as destructive as deflation—and it is exactly what it sounds like: Inflation running out of control.
This is happening today, especially in the real estate market
In fact, it is sometimes called “the hidden tax” because it erodes the buying power of our currency.
It also allows debtors, like the government, to pay back their creditors with “cheaper dollars.”
But the simple truth is this: the more complex an investment is, the less likely it is to be profitable.
In what stage of your investing life are you? The Wealth Accumulation Stage or the Wealth Preservation Stage? Or perhaps a blend of the two? What level of risk do you find acceptable? Is your investment horizon long-term or short-term?
Once you begin to accumulate wealth, risk is a fact of life.
If you invest in stocks, you’ll likely outpace inflation and build wealth but you’ll have to endure a volatile ride.
The Wealth Accumulation Stage comes while you are working, saving and adding money to your investments.
build your portfolio
Stocks provide the best returns over time and serve as our inflation hedge. This is our core wealth-building tool.
Bonds provide income, tend to smooth out the rough ride of stocks and serve as our deflation hedge.
Cash is good to have around to cover routine expenses and to meet emergencies. Cash is also king during times of deflation.
We used to keep ours in VMMXX (Vanguard Prime Money Market Fund).
For these reasons, we now keep our cash in our local bank and in our online bank, which happens to be Ally. Should interest rates rise and money market funds again offer better rates, we’ll switch back.
So that’s it. Three simple tools. Two index mutual funds and a money market and/or bank account. A wealth-builder, an inflation hedge, a deflation hedge and cash for daily needs and emergencies.
maximum growth potential? Hold more in VTSAX.
buying all the stocks in the market index reliably and consistently outperforms professional management, especially when taking costs into consideration.
The basic concept of indexing is that, since the odds of selecting stocks that outperform are vanishingly small, better results will be achieved by buying every stock in a given index.
