Thursday, February 02, 2006
Earn More, Sleep Better: The Index Fund Solution (1999)
Author: Richard E. Evans and Burton Malkiel
Publisher: Simon and Schuster
Credentials
Richard Evans: was Senior VP at three world’s largest advertising agencies; marketed variety of financial products and services for more than 20 years; boss of consulting firm in New York
Burton Malkiel: one of 30 most influential people in mutual fund industry (Smart Money); Professor of Economics in Princeton University; author of several books on investing, including A Random Walk in Wall Street
Malkiel's Website: http://www.princeton.edu/~bmalkiel/
Table of Contents:
1. Index Funds vs Non-Index Funds
2. The Five Giant Steps to Wealth: 1 & 2: Planning; 3) Build Your Portfolio; 4) Cut Taxes; 5) Don’t Tinker, Don’t Wait
Comments:
As the book title suggests, this book is biased towards index funds, a class of unit trusts that incur low annual management fees. The idea behind every investment, as the authors say, is to be better than the average. What average is easier to measure than the change in the stock market index?
Evans showed in this book that there are certain considerations to think about when investing in shares and unit trusts. His conclusion is this: if you just want to accumulate your wealth and earn something better than what banks can give you, index funds are for you. There are several other reasons why index funds are suitable. One, you don’t have to monitor the stock market daily; two, you know you will do just as well as the market on any single day; three, you will enjoy quality of life with your family.
This book also introduces what Evans call the Five Giant Steps to Wealth. The steps are seemingly simple, yet they can be found in any other financial planning books as well. As long as you do some planning, decide what your investments are for, look for the instruments, cut taxes, you should be on your way to accumulating wealth for your intended purposes.
Although the book does provide evidence that index funds perform far better than non-index funds (or unit trusts of any other class), there are two pitfalls to consider.
1. Index funds are also susceptible to market weaknesses. Index funds can fall in value. Theoretically, it is possible for an index fund to drop below the value you purchase. After all, the market does not remember the price you buy the fund at.
2. Index funds are narrow in focus in itself. Therefore if you buy the Singapore Index Fund, for example, your investment is narrowly focused. The solution here is to diversify.
Index funds do have a place in the portfolio of any investor. But it should not be a major component if you are willing to take the risk in getting greater gains. However, a word of advice: at the end of the day, which index fund you pick may also give you a higher or lower gain compared to other index funds. As there is no guarantee by the fund manager that your fund will rise in price, keep an eye open on what you are buying.
¶ 12:34 pm
Author: Richard E. Evans and Burton Malkiel
Publisher: Simon and Schuster
Credentials
Richard Evans: was Senior VP at three world’s largest advertising agencies; marketed variety of financial products and services for more than 20 years; boss of consulting firm in New York
Burton Malkiel: one of 30 most influential people in mutual fund industry (Smart Money); Professor of Economics in Princeton University; author of several books on investing, including A Random Walk in Wall Street
Malkiel's Website: http://www.princeton.edu/~bmalkiel/
Table of Contents:
1. Index Funds vs Non-Index Funds
2. The Five Giant Steps to Wealth: 1 & 2: Planning; 3) Build Your Portfolio; 4) Cut Taxes; 5) Don’t Tinker, Don’t Wait
Comments:
As the book title suggests, this book is biased towards index funds, a class of unit trusts that incur low annual management fees. The idea behind every investment, as the authors say, is to be better than the average. What average is easier to measure than the change in the stock market index?
Evans showed in this book that there are certain considerations to think about when investing in shares and unit trusts. His conclusion is this: if you just want to accumulate your wealth and earn something better than what banks can give you, index funds are for you. There are several other reasons why index funds are suitable. One, you don’t have to monitor the stock market daily; two, you know you will do just as well as the market on any single day; three, you will enjoy quality of life with your family.
This book also introduces what Evans call the Five Giant Steps to Wealth. The steps are seemingly simple, yet they can be found in any other financial planning books as well. As long as you do some planning, decide what your investments are for, look for the instruments, cut taxes, you should be on your way to accumulating wealth for your intended purposes.
Although the book does provide evidence that index funds perform far better than non-index funds (or unit trusts of any other class), there are two pitfalls to consider.
1. Index funds are also susceptible to market weaknesses. Index funds can fall in value. Theoretically, it is possible for an index fund to drop below the value you purchase. After all, the market does not remember the price you buy the fund at.
2. Index funds are narrow in focus in itself. Therefore if you buy the Singapore Index Fund, for example, your investment is narrowly focused. The solution here is to diversify.
Index funds do have a place in the portfolio of any investor. But it should not be a major component if you are willing to take the risk in getting greater gains. However, a word of advice: at the end of the day, which index fund you pick may also give you a higher or lower gain compared to other index funds. As there is no guarantee by the fund manager that your fund will rise in price, keep an eye open on what you are buying.
¶ 12:34 pm
