Conclusion
This has been a book about demystifying investing and making it simple. Simple because once you embrace that you do not have an edge to beat the markets, the best way to invest money becomes a lot more obvious. At this stage I hope you agree.
You are potentially now at a critical junction. Now is when you have to take the next step, move ahead and do what the book suggests. It is a critical junction because inertia leads many of us to put the book away and promptly forget about it, or perhaps store a few memorable points or anecdotes at the back of our minds. It’s a bit like when I read about sensible diets. I tend to think, ‘That makes sense. Must go do that. Starting tomorrow.’ And then have myself another coffee and piece of chocolate, and promptly forget about it all.
Please don’t be like me. Do something – you will be far better off in the long run. Here is a simple checklist of things you can do now.
A checklist of things to do now
- Consider if you have an edge. For most people, in most sectors, it is highly unlikely that you do. If you stop here and embrace this conclusion, that alone will probably lead to better investment decisions in future. But please do plough ahead and implement the rational portfolio.
- Consider the building blocks of the rational portfolio: the minimal risk asset, world equities and potentially other government and corporate bonds, and why they make sense. Those building blocks will be the same for all rational portfolio investors and combining them in the right proportion for you gets you a very long way towards your best possible portfolio.
- Consider your circumstances and risk profile. What stage of life are you at and what is your time horizon? Are you generally a risk taker or risk averse? Depending on your risk profile you should invest in different combinations of the building blocks. If you have zero tolerance for risk, put all your assets in the minimal risk asset; if you want a lot of risk, you can buy all equities.
- Think about your non-investment assets and liabilities in the context of your portfolio as it stands today. Are you running the risk of everything going badly for you at the same time by being unduly concentrated in your assets? Think about how having a broadly diversified rational portfolio will help remedy this problem.
- Think about tax. You probably are already, but do so in the context of how it can reduce your investing costs. Perhaps this means an ISA in the UK, or a tax-efficient pension product, but there may well be other opportunities to be smart about taxes. It probably makes sense to get some professional help here.
- Whatever you do, implement your portfolio cheaply and don’t trade a lot. This alone will serve you well in the long run. You will be getting a little bit richer while you sleep than you otherwise would be.
Our simple rational portfolio enjoys massive advantages over traditional approaches to investing:
- We’re much closer to a theoretically optimal allocation so have a better risk/return to start with.
- We’re much, much cheaper. The compounding drag of fees makes it very hard for an active approach to beat us in the long run.
Please act on the advice in this book. You will be investing without speculation and that should make you sleep better at night.