The Four Pillars of Investing

Buy only true no-load funds and annuities that do not carry fees of any type, including 12b-1 fees.

Over the past decade, the explosion of assets under management should have reduced fees via economies of scale. This increasing fee trend is nothing short of scandalous.

Obsession with the short term is ingrained in human nature; the impulse is impossible to ignore. High investment returns cannot be earned without taking substantial risk. Safe investments produce low returns.

Note how small stocks have had higher returns than larger stocks, but that they also have higher risks.

Human beings prefer present consumption to future consumption.That is, a dollar of income next year is worth less to us than a dollar today, and a dollar in thirty yeas, a great deal less than a dollar today.

But why should stock prices behave randomly? Because all publicly available information, and most privately available information, is already factored into their prices.

For the taxable investor, indexing means never having to pay the tax and investment consequences of a bad manager.

The four most expensive words in the English language are, " This time, it's different."

The reason for this is what the behavioral scientists call “recency”; we tend to overemphasize more recent data and ignore older data, even if it is more comprehensive.

Humans routinely exchange large amounts of money for excitement. One of the most consistent findings in behavioral finance is that people gravitate towards low-probability/high-payoff bets.

The simple reason is, for the most part, the pricing of stocks and bonds at both the individual and market level is random: there are no patterns.

My experience is that the wealthier the client, the more likely he is to be badly abused.

First, as we’ve already mentioned, identify the era’s conventional wisdom and assume that it is wrong. The second strategy is to realize that the asset classes with the highest future returns tend to be the ones that are currently the most unpopular.

Instead, you should consider overweighting value stocks in your portfolio via some of the index funds we’ll describe in the last section.

Most importantly, ignore market strategists who use financial and economic data to forecast market direction.

Your overall portfolio return is all that matters. At the end of each year, calculate it.

The easiest way to get rich is to spend as little as possible.

Since you are unlikely to be saving for a house for much more than five years, you should also place this money into short-term bonds, CDs, and money market accounts. And, of course, it should be held in a taxable account.

To summarize, the five major domestic asset classes you should use are: • Large Market • Small Market • Large Value • Small Value • REITs

you can divvy things up into the three main regions—Pacific (mainly Japan), Europe, and emerging markets (Mexico, Brazil, Turkey, Indonesia, Korea, Taiwan and the like).

• You simply cannot learn enough about this topic. • Be aware that the markets make regular trips to the loony bin in both directions.