Burton G. Malkiel - The Elements of Investing

David F. Swensen

Author of Unconventional Success: A Fundamental Approach to Personal Investment

Chief Investment Officer, Yale University

July 2009

Nothing in the world is worth having or worth doing unless it means effort, pain, difficulty. –Theodore Roosevelt, 1910

A common misperception is that successful investing requires a ton of money, a complicated portfolio, or a detailed understanding of where the markets are headed next. The truth is, sometimes the simplest approach is the toughest to beat. Charley Ellis and Burt Malkiel do a masterful job in Elements of Investing of laying out clear, simple rules that any investor can follow to grow their wealth over time.

Here's the catch: Just because something is simple doesn't mean it's easy. Anyone who's tried to adopt a New Year's resolution to eat healthier or exercise knows what I mean. Day 1 is full of optimism. By Day 7, the initial thrill may have worn off. By Day 30, most of us have reverted back to old habits.

Investing is hard, not because of its complexity but because it requires patience and persistence. Ellis and Malkiel counsel simplicity and discipline, which easily translates to real dollars and cents. Vanguard has studied the best practices outlined in Elements of Investing and quantified the value investors gain when they follow them. In total, an investor can add up to 3% in net annual returns if they build a low‐cost portfolio, rebalance appropriately, maintain tax efficiency, and don't chase returns. A balanced portfolio following this disciplined approach will likely have twice the final value of the typical undisciplined approach over 25 years.

Despite what the headlines or cable pundits might tell you, hot stocks or complicated bets on future market moves are not the way to build your nest egg. There are no shortcuts when it comes to achieving significant financial milestones like buying a house, sending kids to college, or saving for retirement. A strong investment strategy isn't flashy or even fun (unless you're someone like me who gets to see millions of clients succeed by being disciplined). Beware of apps or websites that conflate investing and gambling. Investing is how you build your wealth over time; frequent trading is on par with a trip to the casino—it might be exciting for awhile, but the house wins in the end.

Elements of Investing is a helpful companion for your investing journey, debunking the myth of complexity and reinforcing time‐tested principles any investor can use. Whether you're a do‐it‐yourself investor entering the markets for the first time or a seasoned professional with decades of experience, having the discipline to follow the authors' wise advice will serve you well and help you reach your financial goals.

Tim Buckley

Vanguard Chairman & CEO

August 2020

In 112 years of study and experience, *here are the Elements of Investing we wish we'd always known. Experience may well be the best teacher, but the tuition is very high. Our objective is to provide individual investors—including our delightful grandchildren—the basic principles for a lifetime of financial success in saving and investing, all in 159 pages of straight talk that can be read in just two hours. There are many good books about investing. (Indeed, we've even written a few ourselves.) But most investing books run to 400 pages or more and go into complex details that tend to overwhelm normal people.

If you're like most people, you have neither the patience nor the interest to plow through that much detail. You want to get the main things right. Still, having unbiased information about financial decision making and avoiding costly investing errors is critically important.

That's why we present the most important lessons in this easy‐to‐read, jargon‐free little book. If you happen to be familiar with William Strunk Jr. and E. B. White's classic book The Elements of Style , you will recognize one of the original sources of inspiration for this book—and why we are so brief. If you are unfamiliar with Strunk and White, don't worry. All you need to know is that they whittled down the art of powerful writing to a few basic rules of usage and composition. In less than 92 pages, they shared everything about writing that truly mattered; brevity and precision became instant virtues. Strunk and White's wafer‐thin classic has chugged along for decades. No doubt it will outlive us all.

We now dare state our goal on the equally important topic of investing. How surprising to us that everything of importance on such a heady topic can be reduced to rules you can count on one hand. Yes, investing can be that simple if your brain remains unclouded with taxing complexities. These rules will truly make a difference .

Our promise: Reading this book will be the best time you could spend to put yourself on the right path to long‐term financial security. Then, over your lifetime, you can pick this book up again to scan its lessons and remind yourself what is elemental if you want to turn a loser's game into one you can really win.

1 *58 for Burt and 54 for Charley.

This is a short, straight‐talk book about investing. Our goal is to enhance your financial security by helping you make better investment decisions and putting you on a path toward a lifetime of financial success and, particularly, a comfortable and secure retirement.

Don't let anyone tell you that investing is too complex for regular people. We want to show you that everybody can make sound financial decisions. But it doesn't matter whether you make a return of 2 percent, 5 percent, or even 10 percent on your investments if you have nothing or too little to invest.

So it all starts with saving.

It doesn't matter whether you make a return of 2 percent, 5 percent, or even 10 percent on your investments if you have nothing to invest.

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