The Motley Fool Investment Guide by Tom Gardner and David Gardner
In this latest edition of THE MOTLEY FOOL INVESTMENT GUIDE, David and Tom Gardner provide some good investment advice, along with some historical perspective. They note that the stock market has proven to be an excellent investment—but only when viewed over a long time frame: “The Stock Market Is Pretty Close To A Sure Thing If You Have The Proper Timeline.” The longer your time frame, the more likely you will make money.
I especially like the book’s theme that an investors should make their own financial decisions—and not turn over a portfolio to a professional, who has a vested interest in making fees. There’s one person who can best look out for your interests—and it’s not a stock broker:
“You are the individual most personally invested in your financial success and, therefore, are the one best suited to make your money decisions.”
The authors emphasize many times throughout the book how poorly actively managed funds do, compared to the market a large. Over the long run, almost all actively managed funds compare poorly. Here’s a good metric: “Standard & Poor’s reports that between 82 percent and 88 percent of all domestic stock mutual funds have underperformed the market’s average return. . . “
Buying index funds for the long-term? Great! You will almost certainly beat all the actively managed funds.
Day-Trading? Well, not so likely.
The authors ask the question, “Why Do Most Funds Underperform?” Well the answer is easy: fees.
“The biggest contributor to lagging fund performance is fund expenses.”
They point out the very low fees generally charged by index funds—but even there, some funds are greedy. The authors note the very low fees charged by Vanguard. (Note: I notice that the Vanguard 500 Index Fund has an even lower expense ratio than the authors cite. I checked recently, and the expense ratio was only .04%.)
David and Tom spend a lot of time emphasizing how well index funds do over the long run. They encourage active investors to always compare their results to an index fund. In other words, index funds should be the standard of comparison. Nevertheless, they suggest that with proper research, many investors can beat the index funds:
“If you’re able and willing to take risk beyond the index fund, there’s a wide, wide world out there. “
All in all, I found THE MOTLEY FOOL INVESTMENT GUIDE to be a good, common-sense guide to investing. I especially appreciate the authors clearly explaining how fees eat up investment returns. The Gardners illustrate so well the advantage of index funds, that I intend to continue in that investment path. (Of course, other readers are likely more ambitious than me.)
If you are planning to actively manage your portfolio, the authors have lots of tips. For example, the appendix also contains some guidelines for hiring a discount broker. I also enjoyed the tongue-in-check investment suggestion anecdotes at the end of the book, as well as the amusing “Favorite Reader Emails.”