More Straight Talk on Investing

Lessons for a Lifetime

John J. Brennan, John Woerth

• Publisher: Wiley
• Year: 2021
• ISBN:
  9781119817345
• Edition: 1
• Topic: Business
• Subtopic: Investments & Securities
• Index: Business

A practical and pithy guide to investing to help everyday investors achieve their long-term goals

The 21st century has been beset with three financial market shocks in its first 20 years, the bursting of the Tech Bubble in 2000-2002; the Global Financial Crisis of 2008-09; and 2020 COVID-19 crash. Given this backdrop, it is no wonder that investing can appear to be so daunting to individual investors.

As Chairman and CEO of Vanguard, one of the largest and most respected investment management companies in the world, Jack Brennan has spent his career helping people invest their money. In the newly updated More Straight Talk on Investing, he shares with you the lessons he has learned over his over four decades at Vanguard from a variety of market participants—from Main Street investors and 401(k) plan holders to veteran portfolio managers at the helm of Vanguard funds and sophisticated investment professionals overseeing top endowments and foundations.

This a comprehensive, but approachable book will help you develop the knowledge, confidence, and discipline to navigate the financial markets and attain investment success over the long term. While the financial planning and investing principles covered are timeless, a considerable amount has changed in the nearly 20 years since the first edition, including new products and services, lower costs, and ever-evolving regulation and legislation. An entire generation of investors has come of age over the past two decades and could benefit from understanding that sound and sensible investing is an effective way to achieve financial security.

This book will assist your manage your "serious" money—the dollars that you set aside for long-term goals, such as retirement or the education of your children. The book also emphasizes the concept of thinking of yourself as a "financial entrepreneur"—managing your financial life like owner manages a business.

In a straightforward, plain talk manner, the book demonstrates how to:

• Build a balanced, diversified portfolio that meets your needs and goals
• Evaluate mutual funds and ETFs with a discerning eye
• Adhere to a long-term, disciplined approach to investing
• Control your emotions and tune out the incessant "noise" in the media
• Understand the risks and rewards of financial markets
• Develop a prudent plan and investment policy statement to guide your path forward
• Avoid the pitfalls and mistakes that can derail your investment program

With wit and wisdom, Brennan relays anecdotes and observations that demonstrate the enduring investment precepts that will serve as a guide to novice investors and as a practical refresher for seasoned investors. He has also added three new chapters focusing on evaluating advice options, garnering lessons from endowments, and dealing with the challenges of a low interest rate environment.

PART I
MASTER THE BASICS

1
Successful Investing Is Easier Than You Think

Successful investing is not difficult. But it can seem intimidating. Some assume that you have to be rich or possess an advanced degree to accumulate wealth as an investor. They think you have to be able to understand all the topics covered in The Wall Street Journal—the ups and downs of the stock markets; the interest-rate decisions of the Federal Reserve Board; corporate earnings announcements and dividend policies; the meaning of economic indicators; and so forth. All of these things have meaning, but you don't have to follow them closely to invest successfully. In reality, investing is easier than most people think.

The purpose of this book is to give you the understanding you need to accomplish your financial goals through investing. Over the past 40 years, I've talked to tens of thousands of successful investors. They come from all backgrounds and all stages of life. Some are young; others are old. Some are sophisticated; others are unsophisticated. Many have elite undergraduate and graduate educations; some never went to college.

Despite their differences, all the successful investors I've met share several traits, beginning with a very important one: They invest with confidence. They don't spend their lives searching for a get-rich scheme or investment gimmick that will lead them to a pot of gold, or worrying about what other people are doing with their money. Frankly, they really don't care—nor are they influenced by—how their neighbors, friends, or relatives invest. Confident investors make decisions based on their own personal financial situations, goals, and ability and willingness to take risks.

A Great Time to Be an Investor

This is a great time to be an investor. You have a wide variety of investment vehicles, including thousands of mutual funds and exchange-traded funds (ETFs), from which to assemble an investment program. Educational material has never been more accessible, which means you'll have no trouble finding resources to help become more knowledgeable about the subject. The internet makes it easy to monitor and manage your investments at any time of day, no matter where you are. And thanks to Individual Retirement Accounts (IRAs), 401(k) plans, and other tax-advantaged vehicles, you can secure attractive tax benefits when you put away money for your future. Generally speaking, the financial markets of today work effectively and efficiently. And, very importantly, the costs to invest have never been lower.

Today, millions of people are investing. For instance, 46% of American households own mutual funds and 63% invest via a tax-advantaged savings plan, according to the Investment Company Institute. Still, many segments of our country are not investing. Data from the Center for Household Financial Stability reveals that three in five millennials have no exposure to the stock market. And for those in this generation who invest in stocks, their holdings are low. Meanwhile, Black and Hispanic households are also more likely to lack investment accounts relative to other races. We will never be the country of equal opportunity that we must be if this holds true in the future.

Today's era offers great advantages, but they are only advantages if you participate. You must also steel yourself for two challenges. The first challenge comes from the traditional and social media, as well as those who make a living or a hobby of sharing their “wisdom.” Most pay far too much attention to short-term events in the financial markets. In fact, news stories about the markets and investing read like the articles in the sports pages. Who won today? Who are the hot players? Who's going to have the best season? Who's first in the standings? With so much excited and inescapable commentary about every market move, it's no wonder that ordinary people sometimes feel intimidated or overwhelmed.

This is not to say that there is not thoughtful coverage of investing matters. In investing, less is often more in terms of news flow. Without being too nostalgic, my favorite example of that view is a TV show that ran from the early 1970s to the early 2000s. Wall $treet Week with Louis Rukeyser offered sensible and studied observations of the financial markets. One key attribute was that it aired only once per week, which enabled the host and guests to move away from the minute-to-minute commentary that's now all too frequent. (The program continues today on Bloomberg TV.) Today, of course, there are plenty of reputable websites, radio programs, and podcasts accessible to you that can help you take charge of your financial life and become a better investor. I merely encourage you to be a discriminating consumer of financial media. And don't let it become a competitor of your favorite steaming series, radio program, or podcast for your time.

The second challenge comes from the financial services industry itself. To be clear, it's in the interest of many companies to make you think that investing is difficult and complex. They make money by selling investment products and advice. As you've no doubt noticed, there's no shortage of brokers, investment advisors, and financial planners eager to sign you on as a client and charge you for their services. Recognize that there are some financial professionals who want to make you think you can't make your own investment decisions. Don't believe them.

Your task is to separate the proverbial “wheat from the chaff” (i.e., the useful and actionable information from the noise). The reality is that you can succeed at accumulating wealth without spending time trying to keep up with daily events, incessantly listening to talking heads on TV, or paying someone else hefty sums to invest on your behalf. When you feel intimidated by the so-called experts, remember that they don't necessarily know more than you do. Indeed, every few years, we see headlines about financial hotshots who have lost millions and even billions of dollars through complicated trading schemes or big bets that went awry. What you don't see frequently in the news are the countless stories of individual investors who are quietly and prudently amassing wealth through sensible and disciplined investment programs. These individuals follow the four priorities of confident investing:

1. Be knowledgeable: Do your homework.
2. Be disciplined: Develop good habits.
3. Be skeptical: Avoid fads.
4. Be observant: Keep learning about investing.

The following section covers each priority in greater detail.

Be Knowledgeable: Do Your Homework

Building your confidence as an investor begins with developing some level of knowledge on the subject. Yes, you must be willing to put a little time into understanding the fundamentals of investing. But not much time! I am talking about knowledge at the very basic level.

There's no need to immerse yourself in thick treatises on financial theory. You don't have to subscribe to investment newsletters or attend seminars. You don't need to watch the financial news networks for the latest insights on why the markets did whatever they did today or this week or month, nor do you have to start each day knowing what happened in the Asian markets or in the Chicago futures pits in overnight trading. None of that is essential homework for individual investors concerned with their serious money.

But before you put your dollars in any investment at any firm, you do need some fundamental knowledge. Right now, I'm going to tell you what you need to know at a baseline level, saving the details for later.

First, you need to know a little about three primary types of investments, or asset classes. You've heard of them: They are stocks, bonds, and cash. (Cash means not just cash money, but ready stashes for it, like a bank savings account, certificate of deposit, or a money market mutual fund.) We cover each in our first Baseline Basics call-out box.

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Baseline Basics: Understanding the Asset Classes

To be a successful investor, you need to be an informed investor. For starters, you should have a basic understanding about the risks and rewards of three fundamental asset classes—stocks, bonds, and cash instruments. We'll discuss the asset classes in more detail further on in this book, but for now, an introduction is sufficient.

Asset classes

An asset is simply something of monetary value. In finance, asset classes are types of investments that offer different combinations of risks and rewards.

Stocks

Stocks represent ownership. If you own a share of Google stock, then you ar...