PART I
The 3 Simple Rules of Investing
Everything should be made as simple as possible, but not simpler.
—ALBERT EINSTEIN
TAKING PROFESSOR EINSTEIN’S recommendation, our goal is to make things as simple as possible, but not simpler. You’ll be surprised how simple they can and should be made. In the investment world, however, things are often made as complex as possible. Most investment advice, products, and services offered by investment companies and financial advisors, not to mention academic researchers, are much more complicated than they need to be.
Complexity comes with a cost. If an investment strategy will enable you to save $100 on your taxes or earn $50 more in interest, but it will cost you $3,000 to pay someone to help you do it, then there’s not much point in doing it. Complexity is costing you much more than that, though, and usually you gain nothing.
We’ll cut that kind of complexity to the bone. When there is a strategy that will save or earn you money, we’ll tell you about it. But if it will cost you more to do it than you will save or earn, we’ll tell you that, too. We’re mostly going to describe simplifications that earn or save you more, and cost you less. That may sound like what economists call a free lunch—too good to be true. But free lunches are possible even in the investment field, and we’ve done the work to show you where to find them.
To enjoy your free lunch, just follow the three simple rules discussed here in Part I. The first two rules are about what to invest in and how to invest; the third rule is about what to screen out (and Part II will tell you why). Rule #1 describes what to invest in by encouraging you to radically reduce the number of investment products you use. Rule #2, the central nugget of the book, reveals the investment strategy that is not only the simplest but the best to help you meet your financial goals. You’ll learn how to do this even with only two investment classes. Short and to the point, Rule #3 will tell you to ignore the noise—all the counterclaims and arguments against our recommendations that you typically hear from Wall Street and the financial industry. Don’t let that noise dissuade you from following Rules #1 and #2.