Malkiel - The Random Walk Guide to Investing by Burton G....

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The Random Walk Guide to Investing by Burton G. Malkiel Chemical Bank Professor of Economics Princeton University
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The Random Walk Guide to Investing “Everything should be made as simple as possible”—Albert Einstein The rules for achieving financial security through savings and investment are extraordinarily simple. The challenge is not in knowing the financial world inside and out. The challenge is in the self-sacrifice of savings versus spending, and the discipline of sticking with a plan for the long-term.
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Basic point #1: Fire your investment adviser It is not hard to learn enough about investing to be able to do it yourself If you can do it yourself, why pay someone to do it for you? Malcolm Forbes: The way to get rich from investment advice is to sell it—not to take it. If brokers/advisers really knew what was going on in the market, they would be investing for themselves and not giving this info to the public. The mere fact that they are selling this info is a sure sign that it isn’t very valuable.
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Basic point #2: Focus on four investment categories The four: cash, bonds, stocks, real estate Cash investments: any “money market” investment Bonds: provide stability for a portfolio (lower std.dev.), can be used to “immunize” a future liability like college tuition payments; particularly useful for retirees. Avg. annual returns of 5-6%. Stock: Avg. annual returns of 8-9%, higher risk Real estate: Owning a home, REITs
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Basic point #2: Focus on four investment categories The stock market is usually quite efficient, but history shows some key failings. The housing bubble and the dot.com bubble are two examples just in the past decade. From late 1998 to March of 2000, the NASDAQ went from 1,800 to over 5,100. From 3/00-9/02, it went down to 1,400. Over $7 trillion in market value was lost. When equities bottomed on November 21, 2008, the MSCI World index had fallen 55 per cent since October 31, 2007. This amounted to a global loss of $21 trillion. The index fell even lower in March, but have since recovered slightly.
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Basic point #2: What lessons should we learn All excessively exuberant markets succumb to the laws of gravity. The difficulty lies in staying the course while your friends are raking in (temporary) easy money. By diversifying over many types of stocks and over several asset classes, you avoid such mistakes (to the extent possible) and help ensure the preservation and growth of your capital.
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Basic point #2: Real estate Owning your own home offers significant tax advantages and the opportunity to profit from rising home prices. You should never pay rent to others when you can pay yourself instead through mortgage installments. Obviously, in some markets this isn’t
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Malkiel - The Random Walk Guide to Investing by Burton G....

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