Summary of The Bogleheads’ Guide to Investing

On May 23, 2015, in Finance, by Early Financial Freedom

Perhaps I should have done it sooner but I just finished reading the The Bogleheads’ Guide to Investing. If you have not done so, I strongly recommend to read it. It has tons of practical personal finance information that you can act upon. Below is the summary of the book.

Summary of The Bogleheads’ Guide to Investing

  •  Choose and live a sound financial lifestyle. We need to pay off our credit card debt, establish an emergency fund, get our spending under control, and most importantly, learn how to live below our means, since that’s really the key to financial freedom.
  • Start to save early and invest regularly. The earlier we start, the longer we’ll enjoy the powerful benefits of compounding.
  • Know more about the various investment choices available to us, such as stocks, bonds, and mutual funds. For most investors, mutual funds offer great diversity in a single investment. Don’t invest in things you don’t understand.
  • Figure out approximately how much you might need for your retirement, so you’ll know if you’re on track. You can’t reach your goal if you don’t have a target!
  • Indexing via low-cost mutual funds is a strategy that will, over time, most likely outperform the vast majority of strategies. If you decide to own actively managed mutual funds, choose managed funds with low expenses and place them in tax-advantaged accounts.
  • An asset allocation plan is based on your personal circumstances, goals, time horizon, and need and willingness to take risk. Risk and higher expected returns go hand in hand. There’s no free lunch. Make your investment plan as simple as possible.
  • Costs matter. We can’t control market returns, but we can control the cost of our investments.
    Commissions, fees, and mutual fund expense ratios can rob you of much of your investment returns. Keep costs as low as possible.
  • Taxes can be your biggest expense. Invest in the most tax-efficient way possible. Put tax-inefficient funds in your tax-deferred accounts, and select tax-efficient investments for your taxable account.
  • Remember the importance of diversification. You want some investments that zig while others zag.
    Re balancing is important. Re-balancing controls risk and may reward you with higher returns. Stick with your chosen re-balancing strategy.
  • Market timing and performance chasing are poor investment strategies. They can cause investors to underperform the market and jeopardize financial goals.
  • Invest for your children’s education. There are several tax-deferred and tax-free options available.
  • Know how to handle a windfall, if you receive an inheritance or get lucky and hit the lottery.
  • Answer the question of whether you do or don’t need a financial advisor, and some of the reasons for and against.
  • Understand the importance of protecting the future buying power of your assets by investing in such things as inflation-protected securities. Remember, inflation is a silent thief that robs you of future buying power.
  • Tune out the noise and do not get distracted by daily news events. Avoid hot investment fads and following the herd as it stampedes towards the cliff’s edge. Believing that “It’s different this time” can cause severe financial damage to your portfolio.
  • Protect your assets with the proper types and amounts of insurance. Insurance is for protection. It’s not an investment. Don’t confuse the two.
  • We need to master our emotions if we want to be successful investors. Letting your emotions dictate your investment decisions can be hazardous to your wealth.
  • Make your money last at least as long as you do. Overly optimistic withdrawal rates may cause you to run out of money before you run out of breath.
  • Proper estate planning ensures that assets pass to heirs in a reasonable time and with minimum taxes.

Structuring a Portfolio to Match Your Life Goals

On December 28, 2014, in Retirement, by Early Financial Freedom

basic2If we could categorize our desires into three groups, I think we will end up with “NEEDS”, “WANTS”, and “WISHES”. As an investor, I think our portfolios should be able to support these three categories before retirement and during retirement. “NEEDS” are the basic things that we must have in order to live; a roof over our head, food at the table, etc. Therefore, you must have a very secure income sources for these.

Potential Sources for “NEEDS”

  • Pension
  • Social Security
  • Bonds
  • Annuities
  • Cash


Our “WANTS” are needed to make our lives better, more enjoyable. A nicer roof over our head, better food at the table, in short, a better quality of life are our WANTS.

Potential Sources for “WANTS”

  • Equities
  • Bonds


Our “WISHES” or our Legacies, are for our sons, our daughters, wife, grand kids, in short, they are for our heirs.


Potential Sources for “WISHES”

  • Equities
  • Alternatives

Cash is good, but it is a terrible long-term investment due to inflation, etc. Equities (stocks) are better long-term investment but they are riskier. As you can see, without increasing risk, there is no easy way of getting better returns.

Therefore, it is prudent to match dependable income sources with fixed expenses, while arranging other investments with more discretionary expenses.


Tagged with: