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Book-Summary - The Little Book Of Commonsense Investing

Jobh C Bogle is founder and ex-chairman of Vangaurd. In this book he makes a very strong case for investing in low cost index funds. He gives lot of reasons why we should not try to beat the market returns. Following are the learning I can take from this book:

  • Do not do short term investing. Always aim for long term investing.
  • Investment should be diversified. A person will secure his returns if he owns all of the business available in the market.
  • Do not try to choose individual stocks and invest in it. It is a loosing game. Now index funds will provide the necessary diversification.
  • When you are investing, invest in low cost index funds which will provide the diversification and also has low cost, in terms of tax and managing. Do not invest in high cost mutual/equity funds which would eat up all the returns in the cost of maintaining it. So only fund managers will earn money in it.
  • ETF are good option as long as it is targetted towards diversified portfolio like S&P 500 or US Total Stock market. These ETF should be again long term investments and not short term investments.
  • Remember your returns include the dividends which you get from investing in the fund. Those dividends should also be ideally reinvested.
  • Initially, when you start investing you should have ideally 80/20 Index Fund/Bond investment. As you progress towards your retirements, this share needs to be changed. Usually the ratio will reverse.
  • From time to time you need to evaluate your investments and maintain that investment ratio. This investment can still be diversified like 40% in US Index Funds, 20% in Non US Market Funds and 20% in Bonds.
  • Remember, do not invest emotionally. The market has a mean reversion - Every time market goes up it will come back down to its normal trajectory, similarly everytime market goes down it will come back up to its normal trajectory.