Author: William J. Bernstein
Genre: Personal Finance
Anyone seeking long-term financial goals and independence should read this; here William Bernstein offers the distilled essence of investment wisdom. For the inexperienced investor, this book will help establish a foundation knowledge about the stock market. He wrote this book in 2009 to try and connect with a broader audience after the financial crisis of 2007-08, considered by some to be the worst since the Great Depression of the 1930s. There is little in the way of mathematics or complex graphs to confuse the unwary. He starts with historical examples and then heads straight into the application.
The book does a great job of explaining asset classes from first principles, the reason for getting returns in the first place, and risk premium amongst other basic finance fundamentals. A candid writer, this book is aimed at making you a better investor. This book does not discuss stock picking tips or other such ‘strategies.’ He writes no-nonsense advice for his reader’s financial future and drives his points home with precision and directness. For example his argument in favor of saving: “Save as much as you can, and do not stop saving until you die.”
This book reinforced in me the risks related to downturns and that diversification is ultimately the best way to handle that. I enjoy the way that Bernstein weaves financial history throughout the book. This makes it fun for a reader who enjoys finance. For an absolute beginner who is looking just for what to do, that discussion of history may be less appealing.
Bernstein on Bad Behavior
“In the investment world, you are not above average. You are likely not even close.” If you are looking to beat the market with this book, then you will be disappointed. Bernstein’s aim is to steer you away from what he considers harmful behavior. He reminds you that the goal of financial freedom in your retirement years by investing is not to risk all with a get rich quick scheme—it is about not spending those years poor.
Fear of Another Bear Market
Bernstein points out that we experience a bear market in stocks every few years, but nobody knows when the next one will begin or how to predict them. If you look at history from WWII, you will find we have experienced about 13 bear markets in 65 years or the equivalent of one roughly every 5 years. Bernstein’s solution to this dilemma is to hold a diversified portfolio of low-cost index funds, including both stocks and bonds.
In his chapter devoted to building a portfolio, Bernstein reminds you that your investments should be tailored to your personal circumstances. He demonstrates this by introducing us to four hypothetical investors. He constructs an appropriate portfolio for each of these individuals with distinctly different ages and backgrounds and shows how the fundamental principles are put to work in the real world. He presents portfolios with different asset allocations to explain his argument for a buy and hold strategy.
Bernstein’s recommendation is not new with regards to holding a portfolio of both stocks and bonds, but the presentation is concise, direct, and efficient. It can’t help but reinforce your understanding of those fundamental investment truths that often get forgotten when immersed in fear of bear market events.
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DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.