The Elements of Investing by Burton Malkiel & Charles Ellis

The Elements of Investing: Easy Lessons for Every Investor by Burton G. Malkiel & Charles D. Ellis is a personal financing book published in 2009.

The Elements of Investing provides a clear path for anyone who wants to grow their wealth without the complexities of investing. The tenets in the book center around disciplined saving, compound interest, and the benefits of a simple, diversified investment approach.

The authors emphasize that wealth-building isn’t about taking big risks or attempting to “beat the market”; instead, it’s about creating a sustainable plan that prioritizes tax efficiency, minimizes fees, and leverages steady, long-term growth. By sticking to these principles, investors can sidestep the temptation of risky ventures and market speculation.

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Enjoy!

Save
Index
Diversify
Avoid Blunders
Keep It Simple

Save

It doesn’t matter what investment return you can get if you have nothing to invest
- One with a $50,000 salary can retire faster than one with a $500,000 salary
- Part of “more to invest” is (legal) minimization of taxes
Saving is not deprivation, but empowers you to consciously spend on priorities
Get rich slowly but surely with compound interest
- Rule of 72 → 72/return = how long till your money doubles
- 10% return (historical average) → 7.2 years to double (16x in 28 years)

Index

Clear plan → easier to stay on path
Use low cost index funds as the primary investment vehicle
- Owning all businesses in the economy alleviates anxiety / expense / stock-picking mistakes
- Warren Buffet’s recommendation!
Indexing has outperformed all but a handful of active managers
- Over 15 years, 90% fall short of the index they try to beat
Other Advantages
- Tax Efficient → no turnover that creates capital gains & taxable income
- Simple → don’t need to evaluate & somehow try to pick the best

Diversify

Diversification is essential
- Index funds are automatically diversified – hundreds of individual stocks
Don’t forget to rebalance
- Not always increase returns but reduce the riskiness
- Stay consistent with the allocation that fits your needs

Avoid Blunders

You are the most important factor in your long-term investment success (not the market)
- Minimize mistakes
Goal = just survive long enough for compound interest to work
Common Mistakes
- Overconfidence
- Following the Herd
- Timing
- Selection (Stock Picking)
People imagine they can see trends when none exist

Keep It Simple

Overview
- Save early and regularly
- Have a cash reserve
- Have insurance
- Diversify
- Avoid credit card debt
- Ignore the short-term of the market
- Low-cost index funds
- Avoid exotics (venture capital, private equity, hedge funds)
Match your investing to you
- No single allocation fits all 30-year-olds, 50-year-olds, and 80-year-olds!
- Financial situation, age, emotional strengths, knowledge, and interest in investing

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