The Random Walk Guide to Investing Ten Rules for Financial Success

by Malkiel, Burton G.

• ISBN13: 9780393058543
• ISBN10: 0393058549
• Edition: 1st
• Format: Hardcover
• Copyright: 2003-09-17
• Publisher: W. W. Norton & Company

Summary

For over thirty years, Burton G. Malkiel's informative, irreverent, and gimmick-free books, "the best investment advice money can buy," have been the first places investors turn to understand the market and to use it to their best advantage. With this concise new guide, Malkiel takes the mystery out of the money game by distilling his reliable plan into ten easy-to-follow rules. Beginning with the basics--"Fire your investment adviser" and "Start now"--Malkiel carefully and with no small measure of humor lays out the rest of his plan, including such rules as "#3: Stiff the Tax Collector" and "#8: The Market Is Smarter than You Are." This 200-page guide is essential for anyone starting a portfolio, rebuilding after the dot-com crash, or simply looking for reassurance in the puzzling world of personal finance.

Table of Contents

Preface and Acknowledgments	xvii
PART ONE: THE BASICS	1	(32)
BASIC POINT 1: FIRE YOUR INVESTMENT ADVISER	5	(6)
BASIC POINT 2: FOCUS ON FOUR INVESTMENT CATEGORIES	11	(16)
Cash	12	(1)
Bonds	13	(2)
Common Stocks	15	(9)
Bubbles in Stock Prices
The Tulip Bulb Graze
The South Sea Bubble
The Internet Graze
What Lessons Should We Learn?
Real Estate	24	(3)
BASIC POINT 3: UNDERSTAND THE RISK/RETURN RELATIONSHIP	27	(6)
PART TWO: THE RULES	33	(136)
RULE 1: START SAVING NOW, NOT LATER: TIME IS MONEY	37	(5)
Returns Throughout U.S. History	38	(1)
The Miracle of Compound Interest	38	(2)
The Million-Dollar Difference	40	(2)
RULE 2: KEEP A STEADY COURSE: THE ONLY SURE ROAD TO WEALTH IS REGULAR SAVINGS	42	(15)
Savvy Savings Tips	43	(7)
1. Pay Yourself First
2. Find a Save More Tomorrow Plan
3. Make Out a Budget
4. Change a Spending Habit or Two
5. Think in Terms of Opportunity Costs
6. Be Saving in Your Spending
7. Pay Off Your Credit Card Balance
Strategies for Catching Up	50	(2)
1. Downsize Your Lifestyle and Start Saving Now
2. Consider Pushing Retirement Back a Few Years
3. Make the Most of Your Home Equity
Retirement Planning	52	(2)
The Millionaire Next Door	54	(3)
RULE 3: DON'T BE CAUGHT EMPTY-HANDED: INSURANCE AND CASH RESERVES	57	(11)
Establishing a Cash Reserve	57	(1)
Money-Market Mutual Funds	58	(2)
Bank Certificates of Deposit (CDs)	60	(1)
Internet Banks	61	(1)
Treasury Bills	61	(1)
Tax-Exempt Money Market Funds	62	(1)
Buying Insurance	63	(4)
Variable Annuities	67	(1)
RULE 4: STIFF THE TAX COLLECTOR	68	(15)
Individual Retirement Accounts	69	(2)
Roth IRAs	71	(2)
Pension Plans	73	(2)
401(k) and 403(b) Pension Plans
Self-Employed Plans
What Can You Invest In?
Priorities in Saving for Retirement	75	(2)
A Caveat	77	(1)
Possible New Tax-Favored Vehicles	77	(1)
Tax-Free Savings Strategies for Education	78	(3)
Saving for College: As Easy as 529
Education Savings Accounts
Education Savings Bonds
The Best Tax Strategy of All	81	(2)
RULE 5: MATCH YOUR ASSET MIX TO YOUR INVESTMENT PERSONALITY: HOW TO ALLOCATE YOUR ASSETS	83	(13)
A Reminder: Risk and Return Again	84	(3)
Your Time Horizon	87	(3)
Your Capacity for Risk	90	(2)
Your Temperament	92	(2)
Rebalancing, or Keeping an Even Temperament	94	(2)
RULE 6: NEVER FORGET THAT DIVERSITY REDUCES ADVERSITY	96	(15)
The Benefits of Diversification	96	(2)
An Investment Horror Story	98	(1)
The Potential Crises in Some 401 (k) Plans	99	(1)
How Much Diversification Is Enough?	100	(3)
Do You Need to Diversify Internationally?	103	(1)
Diversification Also Means Buying Other Asset Classes	104	(2)
Diversification Over Time	106	(5)
RULE 7: PAY YOURSELF, NOT THE PIPER	111	(7)
Pay Off All Credit Card Bills	112	(1)
Look Out for Mutual Fund Expenses	113	(2)
Costs Matter for All Financial Products	115	(2)
Don't Get Wrapped Up	117	(1)
RULE 8: BOW TO THE WISDOM OF THE MARKET	118	(17)
Why the Market Is Smarter Than You Are	119	(3)
Being Smarter Doesn't Always Mean Being Smart	122	(1)
Timing Isn't Everything	122	(2)
Why Do Most Professionals Get C's?	124	(3)
But Don't Some Active Managers Beat the Market Every Year?	127	(4)
Managers Who Deserve an A	131	(4)
1. The Role of Chance
2. They Did It Their Way
3. You Never Know in Advance Who the Winners Will Be
RULE 9: BACK PROVEN WINNERS: INDEX FUNDS	135	(18)
The Index Advantage	136	(2)
But Not All Index Funds Are Alike	138	(1)
Exchange Traded Funds	139	(2)
Indexing Works for Bonds, Real Estate, and Other Asset Classes	141	(1)
What Index and What Funds Should Be Chosen?	142	(4)
A Life-Cycle Guide to Asset Allocation	146	(7)
RULE 10: DON'T BE YOUR OWN WORST ENEMY: AVOID STUPID INVESTOR TRICKS	153	(16)
Overconfidence	154	(2)
Herding	156	(4)
Illusion of Control	160	(2)
Loss Aversion	162	(1)
Other Psychological Pitfalls	163	(2)
Susceptibility to Hot Tip Investing
Gin Rummy Behavior
Believing in Foolproof Schemes
Ignoring Costs	165	(1)
Getting Entranced by New Issues	166	(3)
PART THREE: TAKING STICK AN INVESTMENT SCORECARD	169	(16)
Questions Frequently Asked About Indexing	176	(5)
A Summing Up	181	(4)
REFERENCES	185	(4)
INDEX	189