Burton G. Malkiel - The Elements of Investing

1 Cover

2 PREFACE TO ANNIVERSARY EDITION

3 FOREWORD TO ORIGINAL EDITION

4 FOREWORD TO THE ANNIVERSARY EDITION

5 INTRODUCTION

6 IT ALL STARTS WITH SAVING I SAVE FIRST DO NO HARM START SAVING EARLY: TIME IS MONEY THE AMAZING RULE OF 72 SAVVY SAVINGS SMALL SAVINGS TIPS BIG WAYS TO SAVE LET THE GOVERNMENT HELP YOU SAVE OWN YOUR HOME HOW DO I CATCH UP? II INDEX NOBODY KNOWS MORE THAN THE MARKET THE INDEX FUND SOLUTION DON'T SOME BEAT THE MARKET? INDEX BONDS INDEX INTERNATIONALLY INDEX FUNDS HAVE BIG ADVANTAGES ONE WARNING CONFESSION III DIVERSIFY DIVERSIFY ACROSS ASSET CLASSES DIVERSIFY ACROSS MARKETS DIVERSIFY OVER TIME REBALANCE IV AVOID BLUNDERS OVERCONFIDENCE BEWARE OF MR. MARKET THE PENALTY OF TIMING MORE MISTAKES MINIMIZE COSTS V KEEP IT SIMPLE REVIEW OF BASIC RULES ASSET ALLOCATION ASSET ALLOCATION RANGES INVESTING IN RETIREMENT GETTING SPECIFIC VI TIMELESS LESSONS FOR TROUBLED TIMES VOLATILITY AND DOLLAR‐COST AVERAGING DIVERSIFICATION IS STILL A TIME‐HONORED STRATEGY TO REDUCE RISK REBALANCING DIVERSIFICATION AND REBALANCING TOGETHER INDEX AT LEAST THE CORE OF YOUR PORTFOLIO FINE‐TUNING A BOND DIVERSIFICATION STRATEGY A FINAL THOUGHT

7 A SUPER SIMPLE SUMMARY: KISS INVESTING

8 APPENDIX: SAVE ON TAXES LEGALLY INDIVIDUAL RETIREMENT ACCOUNTS (IRAs) ROTH IRAs PENSION PLANS TAX‐ADVANTAGED SAVING FOR EDUCATION

9 RECOMMENDED READING

10 ACKNOWLEDGMENTS

11 ABOUT THE AUTHORS BURTON G. MALKIEL CHARLES D. ELLIS

12 INDEX

13 End User License Agreement

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10 th Anniversary Edition

Burton G. Malkiel

Charles D. Ellis

Preface to Anniversary Edition by Gus Sauter

Foreword to Original Edition by David Swensen

10th Anniversary Foreword by Tim Buckley

Cover design: John Wiley & Sons, Inc.

Copyright © 2021 by Burton G. Malkiel and Charles D. Ellis. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

First Edition published by John Wiley & Sons, Inc. in 2010.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per‐copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750‐8400, fax (978) 646‐8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748‐6011, fax (201) 748‐6008, or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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ISBN 978‐1‐119‐77373‐3 (cloth); ISBN 978‐1‐119‐77378‐8 (epub);

ISBN 978‐1‐119‐77380‐1 (epdf)

To our delightful grandchildren, Porter, Mackie, George, Jade, Morgan, Charles, and Rays

At her death in 1999, at the age of 91, Oseola McCarty bequeathed $150,000 to The University of Southern Mississippi. For her generosity, she received an honorary degree from the university and the Presidential Citizens Medal, the second‐highest civilian award in the United States. Her gift was all the more extraordinary because she earned her living washing clothes.

At a very young age, Ms. McCarty was taught by her mother to be a great saver. She made tradeoffs, spending what she needed to live on, but forgoing any luxuries. She had a used TV, but only watched shows that she could pick up over the airwaves. She did not own a car, electing to walk everywhere. She lived in a house that she had inherited from her uncle. Over the course of her lifetime, she amassed a remarkable nest egg, estimated to be about $250,000.

Ms. McCarty was the very model of a disciplined saver. Her example shows that a little bit of will power—and yes, thrift—can add up to big things. This is Lesson Number 1 in any sound financial plan, and it is the first lesson in this wonderful book by Burton G. Malkiel and Charles D. Ellis.