John Bogle founded the first index mutual fund in 1975 that tracks the performance of 500 biggest companies of America.
What will You Learn From This Book?
John Bogle has devoted his life creating a system that helps investors receive a greater return on their investments. Bogle wrote this book to help investors to achieve their financial goals by teaching them how to invest safely. The advice in this book is very solid and almost impossible to argue with.
After reading this book and following the simple advice given in this book, anyone can become financially free. If you invest in the low-cost index funds regularly for the long term, your financial success is guaranteed. The book is filled with useful information and advice on how to take initial steps in the investing.
It is not get rich quick book instead this book suggests that you should start investing early in your life and keep investing every month till you achieve your financial goal.
1. Choose a Sound Financial Lifestyle
There are three common types of financial lifestyle.
The second type is the consumers, they spend all their income every month, they live pay check to pay check, whenever they get pay raise they buy bigger TV or new car.
The third type is the keeper, they are wise people who save some money each month from their paycheck and invest their savings in wise investments.
What’s your financial Lifestyle?
2. Start Early and Invest Regularly
First of all you should learn to spend less than you earn. If you are saving at least 10% of your savings, then it’s time to start investing. Your money will work happily for you if you invest your money for the long-term in safe investments like index funds.
The earlier you start saving in your life, the more time your money will have to show the magic of compound interest. If you think you don’t earn enough and can not save any money then you should track your expenses for few months and cut few of your needless expenses and start investing that money each and every month.
3. Know What You’re Buying
You should become financially literate. You should investigate carefully before buying any investment. You should also consider buying conservative investments. Some part of your savings, you should invest in bonds that are backed by government and beat the inflation rate.
The author suggests to invest a percentage equal to your age in the bonds, for example if you are 30 years old, you should invest 30% of your savings in bonds. According to me it is very conservative approach, I would invest 90% of my savings in the index based low cost ETFs or mutual funds regularly for the long term.
4. How Much Do You Need To Save?
It is an interesting chapter that encourages you to do some calculations and set some goals. You should know exactly how much money you would need every year for your expenses if you don’t work any more.
For example if you need $25000 every year, you should have at least 1 million dollars in your retirement account and that money should grow at least 8% per year to generate $25000 every year.
5. Keep It Simple
When you are searching for good investment options to invest your money, you should choose the investments that are simple and you understand well. In most cases you will loose your money on the investments that are complicated to understand.
If you don’t have much time and interest to learn about different investments then you should simply invest your money regularly in low-cost index fund. Thus you will achieve financial freedom without much stress.
6. Cost Matters
70% of the active mutual funds manager are not able to beat the performance of their benchmark index because they try to time the market but fail. They buy and sell the stocks each month; they pay a lot of money in the transaction expenses. On average they charge you 3-4 % for expenses, the market return is approx. 8-9 %; they charge you 3-4% for expenses so you hardly get 5-6% on your money.
You can easily beat 70% of the mutual funds manager and get market return of 8-9% by simply investing your money regularly in the low-cost index-fund that tracks the whole market. In the index Fund, the manager don’t buy or sell any stock each month, they just park their money in those well chosen stocks and thus they don’t pay any transaction fees.
The another good factor of index funds is that you don’t pay much money in taxes as you don’t buy or sell your shares every month like active mutual fund managers do.
Every time you sell your stocks on profit, you have to pay at least 12% tax on the profit you gain. In the index-fund investing you don’t sell any stock; you just buy regularly for the long term without paying any taxes.
The best way to diversify your money is to invest in the index fund that tracks the whole market. You can also select the index funds that track different sectors, for example there are many index funds that track agriculture sector, real estate sector, technology sector, energy sector and financial Sector etc.
For more diversification you should also invest some part of your money in the index funds that tracks the bond market and commodities such as gold, silver and copper etc.
Final Thoughts on This Book
If you want to invest your money without worrying about the daily prices of market then you should read this book.
This book explains a simple, easy to follow strategy to become financially free. It reveals that investing is not complicated and investing is easier than many people believe, You can do it.