3 Simple Rules of Investing
Do you think that investing is hard to do it by yourself? Well not anymore. At first, it was hard for me too when i did not know anything about it. But, after I read the 3 Simple Rule of Investing written by Michael Edesess, Kwok L. Tsui, everything started to change. I can see the big picture now. I can see the flow of investing by yourself and how easy it was. In fact, they made their goals based on Einstein quote which is “Everything should made as simple as possible,but no simpler”.
Also, the authors of the book consider themselves as the investor protector from the dark arts of investing. They made it their mission in life to help every individual investors and guide them to be successful in investing. I was so inspired by them and I even created my own blog to help investor also.
What did I learn from the 3 rule of investing?
Rule 1: Simplify Your Options.
This means that you should reduce your investment products to as low as 5 and at most is 10. That is all you are going to need. And the 5 to 10 investment products as stated by the authors inside the book are as below:
- Government inflation-protected securities (GIPS) such TIPS.
- A low-cost total U.S domestic equity index funds such as ETFs.
- A low-cost total international equity index funds such as ETFs.
- Single premium income annuities (income after you reach 80 years old).
- Low-cost term life insurance. This more like a safety net or protection for you.
- A low-cost total U.S bond market index funds such as ETFs
- A low-cost total international bond market index funds such as ETFs
- A low-cost REIT (real estate investment trust) index mutual funds such as ETFs (US and Global).
- Individual Stocks or Bonds you buy yourself through a low cost broker and keep for many years.
- Small amount from a very short list of other investments.
These are the 10 investment products you will ever need at most. As simple as that and as for the other investment products, just ignore it especially the one that offered by financial industry. Although, you have to ensure buying a low cost investment products meaning low brokerage fees and no management fees. This is a vital thing to do because focusing on the present is the only thing you can do as an investor.
Rule 2: Look Only Forwards.
This means that past performance does not guarantee future results. As the author said, this is the golden from this book and the most important thing to do. You only look forwards to your own future plans and goals. Do not waste time looking a how great the active managers investment historical performances are. It is just a marketing strategy and if you get influence by them, their marketing is a success. Trust the authors, you don’t need them to do it for you who charged a very high fees to do it for you while under performing it. You can do it yourself.
The only thing you need to do is know your asset allocations, know your risk and returns. Then, create your own specific investment portfolios and earns profits from market returns through index funds. But, if you still being skeptical, you can seek advice from financial judiciary who put your self interest first rather than any other brokers or active managers who maximize their profits first.
Rule 3: Tune out the noise.
The noise can be the crowds, your friends, your family, the news and the financial media. If you not careful enough, you might be tempting to follow all the noise. As a Smart Investor, you should avoid this. Because you know that market timing and stock timing is hazardous to your wealth. According to the authors, the noise can be as below:
- You’ll hear that gold is a hedge against inflation, yet you aren’t investing in gold. Tune it out.
- You’ll hear that scientifically designed funds performed better than total market index funds, yet you’re investing in the global market index. Tune it out.
- You’ll hear that someone’s financial advisor and broker get excellent results for their clients, yet you aren’t using that financial advisor or the broker. Tune it out.
- And many more noise you can read it by yourself from the books. It is worth your time.
The bad side is that these noise can influence investors a lot. The research called it the social proof. When everyone tends to buy the stocks, you would also want to buy it. The reason is Fear of Missing Out or FoMO. Because we tends to buy it because we don’t want miss out the opportunity whether or not the products is good or bad. this is a bad thing to do as an investor. Have you seen the millionaires and billionaires following the crowds when buying stocks? Surely not. So why should we?
For further explanation, you can further your reading at the 3 Simple Rule of Investing: Why Everything You’ve Heard about Investing Is Wrong ― and What to Do Instead. And, you can check out their website. They had written and sharing a lot of information and knowledge their blog. I learned a lot from their blog and you can learn it too.
By the way, this blog post is just a reviews and a summary which nothing more than a bullet point. It’s still not enough.So,if you read it here only, you not going to understand a lot. Additionally, the book only contains 150 pages. Not a thick book I say. I finished it in three days. Last but not least, this book will be worth your time.