The Bogleheads' Guide to Investing Book

This is a really awesome investment book, especially for beginners. I highly recommend it.

Here is a summary of some of the notes I took while reading:
Debt = negative wealth

Debt is deadly and earning to spend gets you nowhere. The people who reach financial freedom focus on accumulating wealth over time. Focus on your net worth more than your net income.

Before you start investing:
1. Graduate from a paycheck mentality to a net worth mentality.
2. Establish an emergency fund
3. Pay off credit card and high-interest debt.

To calculate how many years it will take an investment to double in value, use the rule of 72. 72 ÷ the annual rate of return = the number of years it takes to double.

Saving is the key to wealth.

Investing is about buying assets, holding them for long periods of time, and reaping the harvest years later.

If you want to accumulate more wealth and/or achieve your financial goals faster the single most powerful thing you can do is save more.

Deciding how much to save is the most important decision you will ever make because you can't invest what you don't save.

The key to successful money management lies in striking a healthy balance between spending and saving.

The annual cost of driving a new, mid-priced car is about $2,500 higher than driving a three year old used car.

Moving to where the cost of living is cheaper can also free up a ton of extra money to invest. Be humble when homebuying.

When you are a beginning investor SAVING is more important than finding the best performing investment.

"Only buy something you would be happy to hold if the market shut down for ten years." -Warren Buffett


You can calculate reasonable expected returns on your portfolio by using Rick Ferri's 30 year market forecasts on portfoliosolutions.com. To calculate the expected return for each asset class in your portfolio multiply the percentage of your portfolio that is that asset class times its expected return. After doing that with all your asset classes add them together and that should be the total expected return (not counting inflation, expenses, taxes, etc). This if course isn't a foolproof prediction of future returns, but it can give you a reasonable ballpark expectation from which to work with.


Always read the fund prospectus to determine what kind of fees are involved before buying a mutual fund.

Always know the funds turnover and favor funds with low turnover.

Don't use wrap accounts.

Low cost is the best predictor for selecting funds with above-average performance.

For maximum tax-efficiency in taxable accounts, you should:
Favor funds with low dividends
Favor funds with qualified dividends
Favor funds with low turnover
Favor tax-efficient index funds and tax-managed funds.

When evaluating funds for a taxable account, use Morningstars Tax-Cost Ratio calculator for the longest period available.

Tax managed funds reduce shareholder taxes through methods such as:
Low turnover
Highest in, first out accounting
Tax-loss harvesting
Selecting low dividend paying stocks
Holding securities for long-term gains
Use redemption fees to discourage trading

Many 401k plans have substantial and often hidden fees that are highly detrimental to the investor. Look in the 401k's summary plan description to see if the administrative expenses are paid by the employer or the employees.

Many 401k plans have highly limited fund choices available.

Many 403-b plans have terrible investment choices. If you find yourself in this situation see if you can move your 403b to a better, lower cost provider by using a 90-24 transfer.

To get lots of good information on college savings plans, check out savingforcollege.com.

In the event that you receive a windfall, the Boglehead's suggest that you:
1-- Deposit the money in a safe account for at least six months and leave it alone until all emotions associated with the windfall have subsided.
2-- Get a realistic estimate of what the windfall can buy. Do your research and think carefully about your options before deciding what to do with the money.
3-- Make specific goals and plans of what to do with the money.
4-- Get professional help. It would be a good time to enlist the help of a good CPA to assist you with taxes, estate planning, insurance changes, and assess your overall financial well-being, etc. The CPA may recommend you to an estate planning attorney or a financial planner.

Do not:
Invest in the current hot-ticket thing
Lend or give money to friends or relatives
Buy a house or car
Take a luxury vacation
Go on a shopping spree
Make a large donation to a favorite charity
Buy expensive toys
Quit your job

After the six months you may do some of these things, but WAIT.

Three rules for being properly insured:
1-- only insure against the big catastrophes and disasters that you can't afford to pay out of pocket. The cheapest insurance is self-insurance.
2-- carry the largest possible deductibles you can afford. The larger the deductible, the more you are self-insuring and the cheaper the premium will be.
3-- only buy coverage from the best rated insurance companies.

Don't mix investing with insurance. Insurance is for protection and investing is for wealth-building. Keep them separate. The only good purpose of insurance is to protect yourself from catastrophes you can't afford.

When you have dependents, buy term life insurance. Buy the longest period that you can afford and need. Make sure the policy is guaranteed renewable.

Get health insurance with the lifetime benefit of the policy at least $1 million and preferably $2 million. Reduce the premiums by taking the highest deductible and co payment you can afford. If you are under 65 and considering a high-deductible health insurance plan, you may want to consider establishing a health savings account for tax-deducted savings.

A good healthcare plan should:
Give you the freedom to see a doctor or specialist of your choice without the need to obtain a referral.
No dollar limits on expenses such as hospital room rates, surgeries, procedures, and lab work.
It should have an annual cap on the amount of money you have to pay out of pocket.
It is good to include out of state and international coverage.

Disability insurance protects your greatest financial asset: you, and your future earning power. Buy as much disability insurance as you think you'll need.

Ideally, a good disability insurance policy will have:
Covers your inability to work in your own occupation
It requires a waiting period of no more than 90 days before coverage begins.
Carries a cost of living adjustment
Benefits are provided for partial disability
Provides the longest benefit in your own occupation for as long as possible or at least until age 65

You need replacement cost homeowners or renters insurance. Cover all potential disasters. Keeping a list and/or video or pictures of your possessions and storing them outside of your house will make it a lot easier if you ever need to make a claim.

If you drive an old car with a low book value you may not need comprehensive and collision coverage. You can skip other add ons like rental car reimbursement and towing because they aren't catastrophes. If you have a good healthcare plan you can skip coverage for medical payments too.

Reduce the cost of homeowners, rental, and auto insurance by taking the largest possible deductible you can afford. You can sometimes get discounts if your home has a security system, smoke detectors, or fire sprinklers. Auto insurance discounts are often given if your car has a security system, anti lock brakes, or air bags. Tell your agent if your car has them.

Purchase a personal liability umbrella policy of at least $1 million.

If you own a business, get insurance coverage for that too.

If you are getting older getting long term care insurance can protect against the enormous cost of care in a nursing home. If you have extremely high net worth you can probably skip it and self-insure. You probably don't need it if you qualify for medicaid. If you get it before you are 60 your premiums will be dramatically lower than if you buy this insurance when you are older.

Good qualities of a long-term care policy:
Daily benefit should be equal to current daily cost of a nursing home in the area where you live.
Inflation protection of 5 percent per year.
The benefit of the payment period should be at least three to five years. A lifetime benefit payment period is best.
An elimination period should be affordable. One hundred days is a good elimination period for most people.
Coverage cannot be canceled for any reason other than failure to pay premiums.
The policy should cover skilled and nonskilled care. Benefits should also cover home health and assisted living care without requiring a prior hospital stay.
No exclusion for particular illnesses like Alzheimer's or dementia.
Benefit triggers specify when coverage begins.
Waiver of premium when coverage begins.
Your annual premium can't be raised unless it's raised for every policyholder in the state.
The policy is tax qualified, making the premium tax deductible and the benefits not subject to taxes.

A good insurance agent can save you time and money and help you determine what types and amounts of coverage you may need.


All in all I highly recommend this book to any young or inexperienced investors looking to get their bearings and make wise investment decisions.