Complexity comes with a cost. If an investment strategy will enable you to save $100 on your taxes or earn $50 more in interest, but it will cost you $3,000 to pay someone to help you do it, then there’s not much point in doing it. Complexity is costing you much more than that, though, and usually you gain nothing.

We’ll cut that kind of complexity to the bone. When there is a strategy that will save or earn you money, we’ll tell you about it. But if it will cost you more to do it than you will save or earn, we’ll tell you that, too. We’re mostly going to describe simplifications that earn or save you more, and cost you less. That may sound like what economists call a free lunch—too good to be true. But free lunches are possible even in the investment field, and we’ve done the work to show you where to find them.

To enjoy your free lunch, just follow the three simple rules discussed here in Part I. The first two rules are about what to invest in and how to invest; the third rule is about what to screen out (and Part II will tell you why). Rule #1 describes what to invest in by encouraging you to radically reduce the number of investment products you use. Rule #2, the central nugget of the book, reveals the investment strategy that is not only the simplest but the best to help you meet your financial goals. You’ll learn how to do this even with only two investment classes. Short and to the point, Rule #3 will tell you to ignore the noise—all the counterclaims and arguments against our recommendations that you typically hear from Wall Street and the financial industry. Don’t let that noise dissuade you from following Rules #1 and #2.

If you were going to buy a computer, how many brands do you need to choose from? About 10? And the same thing for a smartphone—maybe 10 models, at most? This point applies whether you’re a teenager doing homework or a top executive at a Fortune 500 firm.

Shopping for investments is a little different. You’re faced with tens of thousands of investment vehicles to choose from, offered by thousands of investment firms. There are more than 80,000 mutual funds and ETFs (exchange-traded funds) worldwide. There are almost 10,000 hedge funds. The array is mind-boggling. And it keeps expensive financial advisors busy trying to guide confused investors through the mess. They let you know it’s difficult to choose because there are so many choices.

But, actually, there aren’t. If there were 100,000 computers or smartphones to choose from and 99.9% of them cost 5 to 80 times as much as the other 0.1% but weren’t any better, how many would there really be to choose from?

Why aren’t there 100,000 computers or smartphones for the consumer to choose from but there are 100,000 investment vehicles? Because of product and price confusion—a topic we covered in the introduction. Consumers don’t realize that 99.9% of investments cost so much more than the others. Neither do they realize that those few that cost so much less are just as good as or even better than the rest. They have been so confused by the product that they think they’re buying a luxury convertible when they’re only buying a bicycle—and paying 50 times too much for it. They’re so confused that they don’t even know what, exactly, they’re paying.

Hiring a financial advisor to guide you through the mess of investment products is usually no help. Most financial advisors will only reinforce and even add to the confusion because it is what they were taught, it is the industry status quo, and most of them—perhaps too uncritically—believe it. They believe they’re trying to help their clients while also making a living, and they have no incentive to depart from the industry line.

You need only consider a very few types of investments, or what’s known as asset classes: stocks (also called equities), fixed income (bonds and short-term investments like bank accounts, certificates of deposit [CDs], etc.), perhaps real estate, and simple forms of insurance that ensure meeting cash flow needs. Specifically, here’s all you need:

In the case of the stock, bond, and REIT index funds, competing versions are offered by a small number of providers for fees of less than a quarter of a percent annually, and often much less. You should confine yourself to only those. Examples appear on the 3 Rules of Investing website, with regularly updated information.

Now we will describe each investment vehicle in more detail.

The best-known GIPS is the U.S. Treasury inflation-protected securities (TIPS). These can be purchased easily online at the TreasuryDirect website¹ of the U.S. Department of the Treasury. Several other national governments also issue inflation-protected securities. The United States is the biggest issuer, however, so to keep things simple we’ll talk mainly about TIPS.

TIPS protect against inflation by increasing the face value by the inflation rate each year. Let’s start with an example. Suppose you buy a TIPS contract for its face value of $1,000, and the interest rate is 1%. Hence, the first year the interest is 1% of $1,000, or $10.

But each year the Treasury increases the TIPS’ face value for inflation. Let’s suppose that in the first year after you bought it, inflation is 2%. That means the face value becomes $1,020, so next year you will get interest of 1% on $1,020, or $10.20. And so on, for the length of the TIPS contract. As this example shows, as the TIPS contract matures, the government continues to pay you interest on the inflated face value. The final payment, then, is likely to be much more than what you paid for the TIPS in the first place, to keep up with inflation.

Another nice thing about TIPS is that they also protect you against deflation. If inflation was actually negative from the time you bought the TIPS until maturity, then you’ll still get your $1,000 back at maturity, not its deflated value.

There are two risks with TIPS. One is that the government will default on its obligation. That’s a negligible risk, however, if it’s the government of a major developed country. The second risk is a little greater: that the government’s inflation rate may not be your inflation rate.² The government calculates inflation based on the “average” basket of goods consumed by the average person in the country. But your consumption might be of a different basket of goods. Your goods might increase in price faster than the average—then you could be in trouble. (Of course, their prices could also increase slower than the average, and then you’d be fine.) For example, the price or cost of health care and nursing homes has increased much faster than average prices. And guess what? As you grow older, that’s what you’ll be spending a lot of money on, like it or not. So if the price of health care increases faster than the rate of general inflation, TIPS payments will lag behind.

Be that as it may, the main use of TIPS is to protect against huge fluctuations in general inflation, which really could occur; they occurred in the United States as recently as the 1970s and early 1980s and more recently in some other countries. So if you’re depending on payments from investments over the next 30 to 60 years, it’s a good idea to protect against those fluctuations if you can.

Here’s one more point to keep in mind: TIPS’ longest maturity is 30 years. You can guarantee yourself an income until 30 years out, but what about after that? If you’re retired at age 60, there’s a decent chance you’ll still need to collect an income after age 90. For that you need an annuity—the simplest kind available. It’s on our list of core investment vehicles, and we’ll discuss it soon.

Because global stocks are not as certain as GIPS to pay your money back, they have to offer you more. As we noted earlier, at this writing, U.S. TIPS offered a return of only about 1.5% above inflation over the next 30 years.³ Global stocks, however, are likely to provide a higher return, if you wait long enough. As we noted in the introduction, studies suggest that if you hold a diversified stock portfolio for 30 years or more, history suggests you’re likely to get a good return (i.e., about a 5% return, above inflation, on average, give or take perhaps 3%). That likelihood is as high as possible if the portfolio is globally diversified. But it’s not guaranteed, not at all. GIPS, in contrast, are guaranteed by the government that issued them.

Fortunately, it’s easy and very inexpensive to invest in a globally diversified stock portfolio. The simplest way is to buy a world stock index ETF. “Index” in this context simply means a single investment vessel that holds a lot of different shares in various stocks—in fact, hundreds or thousands of them. You’re in effect investing in multiple firms at once, rather than investing in Firm A, Firm B, and so forth. A few world stock index ETFs are similar—from companies like Vanguard, BlackRock iShares, State Street SPDRs, and Schwab. It’s easiest to buy one that simply holds the whole global stock market (e.g., available at the time of this book’s printing, and in the United States, from Vanguard,⁴ iShares,⁵ and SPDR⁶). They can be purchased easily online after opening an online brokerage account with, for example, Schwab, E*TRADE, or TD Ameritrade. These funds have low “expense ratios,” the fees their managements charge per year. For example, two of the lowest-cost world stock ETFs currently have expense ratios of 0.19%⁷ and 0.24%,⁸ respectively. Hence, for every $10,000 of the assets you’ve invested, you’ll pay either $19 or $24 in fees that year, depending on which you choose. These two world stock funds are divided in approximately the same way the stocks of the world are divided. One of them reports that it holds 45% in U.S. stocks, 45% in international developed-market stocks, and 10% in stocks of emerging-market countrie...