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Review: The Bogleheads' Guide to Investing

The Bogleheads' Guide to InvestingThe Bogleheads' Guide to Investing by Taylor Larimore
My rating: 4 of 5 stars

A Boglehead is an investor who follows the philosophy of Vanguard founder John Bogle. This book contains simple, honest, and wise financial advice based on that philosophy. Contrary to active investing, with its market timing and performance chasing, the Bogleheads espouse passive investing, and base their strategy on Efficient Market Theory (EMT) and Modern Portfolio Theory (MPT). I’ve considered myself a Boglehead since 2008, when I stumbled upon the Bogleheads forum and moved my money into Vanguard funds. I highly recommend this book to beginning investors (it's pretty basic).

The three authors present not only their own opinions and Bogle’s, but include many quotes from big names like William Bernstein, Warren Buffett, Paul Farrell, Richard Ferri, Burton Malkiel, Bill Schultheis, Charles Schwab, Larry Swedroe, and Jason Zweig.

The book has an appendix of excellent investing books, many of which I’ve read (see my finance reviews).

The Bogleheads’ tenants
Choose a sound financial lifestyle. Start early and invest regularly. Know what you’re buying. Set goals and work toward them. Use index funds. Keep costs and taxes low. Rebalance. Diversify your portfolio.

Bonds
Muni bonds make sense for those in higher tax brackets (25%+), but compare yields to the after-tax return on taxable bonds. Morningstar has a calculator.
Hold your age in bonds, plus or minus based on risk tolerance.
Use short or intermediate-term bond funds.

Asset allocation
Use life-cycle/target date funds, or copy them in building your portfolio.
The noncorrelation of REITs makes them worth holding in larger portfolios. Make them a max of 10% of equities allocation.
Make international stocks about 20% of equities.

Insurance
Don’t buy life insurance until you have dependents. Then, buy term.
Seriously consider disability coverage. Buy as much as you think you’ll need. Consider purchasing with after-tax dollars.
Property insurance should be replacement-cost.
A personal liability umbrella policy of $1 million is a must-have.
Choose an insurance company with an A.M. Best rating of A or better.

Miscellaneous
When hiring a financial advisor, hire a fee-only (not commission- or fee-based) CFA or CFP.
In over 200 years, there’ve been no 15-year periods where US stocks have lost money.

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