By Selwyn Gerber: Everything you needed to know about investing, but were working too hard at it to ask.
The book that follows outlines the most straight forward and effective strategy for smart investing. In fact, it is so simple and so clear that a person of average intelligence should be able to grasp it by reading this short introduction. For those of you who are skeptics, and require greater proof, the ensuing chapters will expound upon these ideas and illustrate them with graphs and historical statistics. You will learn not only what to do but why it works and the field of wealth management will be demystified. For the rest of you, the following few pages should be enough to radically redefine your approach to preserving your wealth and making it grow. You will be empowered, able to take charge of the management role and beat the pros hands down.
Rip Van Winkle: Investment Guru?
The modern world and free market economies have provided more opportunities for wealth generation than have existed at any previous time in human history. More ordinary people find themselves blessed with financial success that would have been unthinkable only generations ago. All of us face the prospect growing old at a time when the Social Security system as we know it seems in jeopardy and the needs for healthcare and living costs in old age are higher than ever.
As we march forward in the 21st century, markets are becoming more volatile and complex. The proliferation of sophisticated investment vehicles such as hedge-funds, derivatives, synthetics, and an alphabet soup of specialized purpose investments has only made the process of investing more stressful and confusing to the average person. As the wise King Solomon noted, “the wealth of the rich will not allow him to sleep.” (Ecclesiastes 5:12)
Imagine, if you will, what would happen to your financial position if you were to avoid making any investment decisions for the next twenty years. Instead of spending your valuable time agonizing over the difficulty and uncertainty of deploying and monitoring capital, you could spend that same time laying on the beach, playing golf, or even sipping whiskey at the local pub. For a select few, investing is a love pursued with passionate devotion. The rest of us, however, would prefer to devote our time to family, pet causes, hobbies, and recreation.
Nevertheless, most of us would consider ignoring our portfolios to be irresponsible and a sure fire recipe for financial ruin. Thus, we either spend countless hours wrestling with our investment decisions or we put our faith in the hands of professional managers, usually with disappointing results.
What if there were a way to structure your finances whereby you had the clarity and confidence to know that you would better off twenty years from now by simply doing nothing?
Many of us were brought up to believe that success is a function of hard work. We have been taught that laziness is a deadly sin that promises to impede any progress in life. In fact, Washington Irving’s famous character, Rip Van Winkle, is depicted as a floundering fool who falls into drunken slumber for twenty years and awakes to a world that has moved on without him, barely noticing he was even gone. Rip is the anti-hero who teaches us that a life of inaction is a wasted life. Following his example will certainly not produce a life of personal growth, satisfying relationships or astounding productivity. Yet, when it comes to investing, old Van Winkle might have something to teach us after all.
Financial markets behave in a manner that is often mystifying both to the uninitiated and the veteran alike. Most investors subscribe to a belief that through diligent research and analysis, they can select the right stocks and the right managers and even determine the right timing to make their investment decisions. Empirical data shows that this belief is a myth. In the short term, there is no question that certain strategies and some managers can and will provide returns above the market as a whole. That being said, the cold hard facts demonstrate clearly that over time, active strategies consistently fall short of their own market index benchmarks. Experts agree that by simply owning index funds, and patiently weathering the volatile tides of market activity, investors will ensure market returns…