Money Listens

Why are so many of us lousy investors?  We’ve been reading MONEY Magazine for years, keep up with CNBC, and try our best to make wise decisions.

The Bogleheads’ Guide to Investing has been on my “to read” list since it came out in 2006.  The book is a group effort by three followers of John Bogle, founder of Vanguard mutual funds.  Proponents of Bogle’s strategy of investing are referred to as “Bogleheads.”  I postponed reading the book because most of my focus has been on spending less and saving more, not investing.  The book is a comprehensive how-to guide for beginning investors.  But it’s also got a fair amount of psychology and philosophy in the mix.

The book has a great answer for why so many of us are lousy investors.  It’s because of the principles we have learned to live by.

• Don’t settle for average.  Be the best.
• Trust your instincts.
• If you don’t know how to do something, ask an expert.
• You get what you pay for.
• If there’s a crisis, do something, take action.
• History repeats itself.  The best predictor of future performance is past performance.

Applying these principles to investing will leave you poorer. *

Investing is a whole different ballgame, with its own rules.  That’s because the stock market is random and unpredictable.  The rules that we’ve lived by all our life, that have served us so well, are useless when it comes to investing.

Who is happy with being average?  Don’t we always strive to be the best?  Don’t we want the best returns on our investments?  It’s questions like these that torpedo our portfolio.  The “average” investor takes high risks to try for “better-than-average” returns and ends up “below-average.”

Bogleheads choose index funds, little risk, and are happy with “average” returns.

*The Bogleheads’ Guide to Investing by Larimore, Lindauer, and LeBoeuf. p. 76

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