Saturday, July 26, 2008

Efficient Investing

The second article uses the term "lazy", which was the original title of this post, but I prefer to think of it as efficient - efficient in time, money, and effort.

Link to "The best investment advice you'll never get"

One by one, some of the most revered names in investment theory were brought in to school a class of brilliant engineers, programmers, and cybergeeks on the fine art of personal investing...

Stanford University’s William (Bill) Sharpe, 1990 Nobel Laureate economist and professor emeritus of finance at the Graduate School of Business:
“Don’t try to beat the market,” he said. Put your savings into some indexed mutual funds, which will make you just as much money (if not more) at much less cost by following the market’s natural ebb and flow, and get on with building Google.

Burton Malkiel, formerly dean of the Yale School of Management and now a professor of economics at Princeton and author of the classic A Random Walk Down Wall Street:
Don’t try to beat the market, he said, and don’t believe anyone who tells you they can—not a stock broker, a friend with a hot stock tip, or a financial magazine article touting the latest mutual fund.

John Bogle, "Saint Jack", is the living scourge of Wall Street. Though a self-described archcapitalist and lifelong Republican, on the subject of brokers and financial advisers he sounds more like a seasoned Marxist:
Ignore them all and invest in an index fund. And it doesn’t have to be the Vanguard 500 Index, the indexed mutual fund that Bogle himself built into the largest in the world. Any passively managed index fund will do, because they’re all basically the same.

But the premise of indexing is that stock prices are generally an accurate reflection of a company’s worth at any given time, so there’s no point in trying to beat that price. The worth of a client’s investment goes up or down with the ebb and flow of the market, but the idea is that the market naturally tends to increase over time. Moreover, even if an index fund performed only as well as the expensively managed Merrill Lynch Large Cap mutual fund that was in my portfolio, I would earn more because of the lower fees.

Over the last 21 years, chief investment officer David Swensen has averaged a 16 percent annual return on Yale University’s investment portfolio, which he built with everything from venture capital funds to timber. “Invest in nonprofit index funds,” he says unequivocally. “Your odds of beating the market in an actively managed fund are less than 1 in 100.”

Link to "8 Lazy Portfolios"

What are Lazy Portfolios? Just simple, boring versions of a proven Nobel prizing-winning strategy: Well-diversified portfolios of no-load, low-cost index funds that require little balancing and no active trading, yet they're winners in bear and bull markets. And so easy, anyone can set them up.

The portfolio I like:
33% in VIPSX (Vanguard Inflation-Protected Securities)
33% in VTSMX (Vanguard Total Stock Market Index)
33% in VGTSX (Vanguard Global Stock Market Index)

Alternative for VIPSX is Vanguard Total Bond Market Index (VBMFX).

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