I have no financial training or credentials. This article represents my understanding from synthesizing many sources of information, but I am likely misusing terminology, and I may be factually incorrect on some points. Apply this information at your own risk.
Don’t invest in anything you don’t understand.
This is the first rule of investing. In a world where people want your money, it’s a good way to avoid becoming mark, swindled out of your life savings. In other words, it’s important to understand:
- What your money will be used for
- Where the new money to pay your return-on-investment will come from
- What the risks are
If investing for building personal wealth has a second commandment, it is to continually pump excess income into low-cost index funds that track a large chunk of the US stock market. It’s not the purpose of this piece to justify this, but mountains of research indicates that this almost absurdly simple strategy—when executed with discipline and an iron stomach—has historically outperformed pretty much every complex investment strategy implemented by active traders, especially once fees are accounted for 1.
I have found these two pieces of advice to be in conflict. This piece is my attempt to sort this out.Continue reading “Why does the world want index investors?”