Anyone interested in learning about investing has probably felt overwhelmed by the amount of financial literature to choose from. How do you even know where to start? A search for the keyword “investing” yields over 50,000 results in the “Books” category alone on Amazon.com. If you’re currently in this situation, look no further. The Bogleheads’ Guide to Investing, written by Taylor Larimore, Mel Lindauer, and Michael LeBouef, is possibly the best book for the beginning investor. These seasoned investors explain their tried and true investment approach while defining important concepts, terminology, and laws along the way.
What Are Bogleheads?
I would be remiss to leave the term “Boglehead” unexplained. The term is intended to honor Vanguard founder and investor advocate John Bogle. He created the world’s first retail index mutual fund, wrote several investing books, and currently works as an investor advocate. “Bogleheads” are investing enthusiasts who participate in the Bogleheads Forum, which has grown to over 20,000 registered users since its inception in 1998. The forum’s regular posters discuss financial news and theory, while also helping less experienced investors on the Forum develop their portfolios.
The Bogleheads’ Guide to Investing
The authors, Taylor Larimore, Mel Lindauer, and Michael LeBouef, have all become millionaires through various career paths. They are clearly very experienced investors who are well read on the subjects of investing and personal finance. They have collectively contributed over 40,000 posts on the Bogleheads forums, where they are very highly regarded by other investing enthusiasts. They are supportive of Vanguard funds, which they recommend based on multiple factors. However, the authors are not associated with Vanguard – they are simply recommending investing products which they understand to be the best.
The book is organized into two main sections called (1) Essentials of Successful Investing and (2) Follow-Through Strategies to Keep You on Target. The range of topics covered in the first section alone is impressive:
- Assessing your financial lifestyle and goals
- How and why to start investing young and consistently
- Types of investments
- Inflation-protected bonds
- Investing minimum requirements
- Avoiding situations that waste your money
- Asset allocation
- Reducing costs
- Minimizing and deferring taxes
- Market timing
- Money for college
- Employing a windfall
- How to find a financial advisor
The second section starts by explaining how to monitor your portfolio and rebalance asset allocations as needed. The rest of the section covers various strategies to avoid doing stupid things to your portfolio. For example, ignoring “experts” on television or any other media. The guide also covers how to control your emotions, understand recency bias, and avoid making drastic short term actions that could wreak major havoc on your long term investments. The last two chapters are about purchasing insurance policies and how to plan to pass your money on to your descendants and/or institutions.
Despite the various studies and reports referenced in the text, I was surprised that the authors did not use footnotes or a bibliography to document their sources. References to reports always included the publishing author or firm and the date, but a formal reference would be appropriate. Despite this minor oversight, the book’s lessons are consistently reinforced with an abundance of relevant quotes from the world’s leading investment researchers, scholars, and authors. Chapter 7, entitled “Make Index Funds the Core, or All, of Your Portfolio,” includes a list of 28 such quotes touting the reliability and strength of index funds. In this chapter alone, the following investing gurus are quoted:
- Frank Armstrong, author of The Informed Investor
- Gregory A. Baer and Gary Gensler, authors of The Great Mutual Fund Trap
- William Bernstein, Ph.D., M.D., author of The Four Pillars of Investing
- John C. Bogle, founder and former chairman, The Vanguard Group
- Jack Brennan, chairman, The Vanguard Group
- Warren Buffet, chairman of Berkshire Hathaway
- Jonathan Clements, author and writer of the popular Wall Street Journal column, “Getting Going”
- Douglas Dial, portfolio manager of the CREF Stock Account Fund of TIAA-CREF
- Paul Farrell, columnist for CBS Marketwatch and author of The Lazy Person’s Guide to Investing
- Richard Ferri, author of Protecting Your Wealth in Good Times and Bad
- Walter R. Good and Roy W. Hermansen, authors of Index Your Way to Investment Success
- Arthur Levitt, former chairman of the Securities Exchange Commission and author of Take on the Street
- Burton Malkiel, professor of economics at Princeton University and author of A Random Walk Down Wall Street
- Moshe A. Milevsky, author of The Probability of Fortune
- Jane Bryant Quinn, financial columnist for Newsweek and the author of Making the Most of Your Money Now
- Ron Ross, author of The Unbeatable Market
- Paul Samuelson, first American to win the Nobel Prize in Economic Science
- Bill Schultheis, author of The New Coffeehouse Investor
- Charles Schwab, founder and chairman of the board of the Charles Schwab Corporation
- Douglas A. Sease, author of Winning With The Market and former financial editor of the Wall Street Journal
- Chandan Sengupta, author of The Only Proven Road to Investment Success
- William F. Sharpe, Nobel Laureate, STANCO 25 Professor of Finance, Emeritus, Stanford University Graduate School of Business and Chairman, Financial Engines, Inc.
- Rex Sinquefield, co-chairman of Dimensional Fund Advisors
- Larry E. Swedroe, author of The Successful Investor Today
- Andrew Tobias, author of The Only Investment Guide You’ll Ever Need
- Jerry Tweddell and Jack Pierce, authors of Winning with Index Mutual Funds
- Eric Tyson, author of Investing For Dummies and Mutual Funds For Dummies
- Jason Zweig, senior writer and columnist at Money magazine and coauthor of the revised edition of Benjamin Graham’s classic, The Intelligent Investor
Since it was published in 2007, The Bogleheads’ Guide to Investing does not include any discussion about the Great Recession of 2008 and the time that followed. Tables used to demonstrate hypothetical investment returns are based on data from 2006 and earlier. Some readers may want a more recent discussion of investing strategy, considering we just experienced one of the most remarkable downturns in economic history. However, the investing principles explained in the book are designed to create and maintain wealth through bear markets and bull markets alike. The Bogleheads investing philosophy is meant to withstand the test of time and does not rely on market timing.
Overall, The Bogleheads’ Guide to Investing covers a comprehensive range of investing topics and the easily understood information is written in a friendly tone. One of the best parts about the advice provided within this guide is that it’s 100% clearly defined and actionable. As opposed to other financial books which offer vague recommendations with the disclaimer that “everyone’s situation is unique,” the authors of the Bogleheads’ Guide to Investing made sure to quantify their recommendations (e.g. how much of each asset class to buy, how much insurance to buy, etc.), which readers will find very useful. I completely recommend this book as a primer for anyone interested in investing. Additionally, this book would be appreciated by the person who already has a good understanding of personal finance but wants to verify his or her own strategy against the solid Boglehead investment recommendations. This book exposes a lot of bad advice and dishonest tactics practiced by brokerage houses and insurance salesman across the country. Being able to identify and avoid these bad investments is worth the price of the book alone.
Final note: If you’re interested in getting rich quick, this is not the book for you. Getting rich quick will involve market timing, high taxes, and probably a good amount of luck. This is a book only for those interested in investing in reliable index funds, minimizing wasted money (i.e. taxes), and managing the steady accumulation of wealth over their working career.
Category: Book Reviews