Warren Buffet
The above quote by Warren Buffet is expanded upon by John Bogle in his book titled ‘The Little Book of Common Sense Investing’. The opening line of this book clearly noting that “successful investing is all about common sense”.(1)
This statement is not a theory but has proven to be a fact by using simple arithmetic and share market performance history. Key to the financial strategy that both Warren Buffet and John Bogle outline is buying a fund that holds an all-market portfolio ~ an indexed fund, and then holding on to this fund for the long term, maybe forever, creating an option for inter-generational wealth.
When explaining an indexed fund, the analogy of a Basket is used for a Portfolio and Eggs for Shares. The Portfolio is the basket that holds the eggs ~ the shares! An index fund has shown to make up for its lack of short term excitement with its truly exciting long term gains (1). https://www.incomesolutions.com.au/dividends-are-the-investors-best-friend/
The risk associated with investing in an indexed fund is kept to a minimum as you do not have the risks of individual stock performance, market sector variables and reliance on an individual financial manager selecting the best performing investments. Only the risk of the overall stock market remains.
Spreading your risk by investing in an indexed fund will not stop you from losing money in a down market, however it will ensure you lose less of it, and while it works over time it does not work every year. Hence, the importance of applying this strategy for the long term.
The question can be asked “Why then is this simple and proven investment strategy not easy?” The problem is our behaviour follies that propel us to:
– Buy high and sell low
– Look at what has only recently happened to predict the longer-term future
– Sell winning stable investments and put money into speculative investments that invariably turn out to be losers.
The above are just a few of the mistakes that can make us our own worst investment enemies.
“There seems to be some perverse human characteristic that likes to make easy things difficult.”
Warren Buffet
At Income Solutions the principals of the above investment philosophy is applied when advising both new and existing clients to ensure this successful strategy is both simple, and with the right financial advice… easy!
1) The Little Book of Common Sense Investing, John C Bogle.
