The Elements of Investing: Burton G. Malkiel and Charles D. Ellis

Alaska RR – circa 1950

The Elements of Investing is a small investment book patterned after the very popular book on writing, The Elements of Style.  There are five primary sections to this book and they are as follows.

1. It All Starts With Saving
2. Index
3. Diversify
4. Avoid Blunders
5. Keep It Simple

There are many blog posts that focus on numbers 1, 2, 3, and 5 here at ITA.  Search The Golden Rule of Investing and you will find material critical to point number 1.  Malkiel and Ellis add a number of ways one can save.  Some that quickly come to my mind are:  Buy term life insurance (or avoid completely), increase deductible insurance on automobile, don’t smoke, drink tap, not bottled water, carry your lunch, don’t own a pet, and pay off the credit card every month.  There are many more and I’m sure ITA readers will add their own ideas.  We all have areas were we can reduce expenses and save the difference.

Point number two is to always use index mutual funds or non-managed Exchanged Traded Funds (ETFs) instead of trying to analyze companies and select individual stocks.  If you work for a company where they provide stock options, do not place all your savings in the company you work for.  This leads right into point number three (3) – diversify.

Point number three is to diversify and I recommend global diversification.  Actually, this can be accomplished by investing in one single ETF, VT.  My preference is to use more than one and if you follow the Galileo, Rutherford, and other portfolios on this blog, you will find all are diversified all over the planet.  This is accomplished using very few ETFs.

I’ll not focus on the Avoid Blunders section, but move on to point number five which is to Keep It Simple.  In many ways, point number 5 is a repeat of points 1 through 3.  There is more emphasis on asset allocation, but this can actually be covered in point 2.

The Elements of Investing is best modeled by the Schrodinger Portfolio as it is a global portfolio with broad diversification using non-managed ETFs.  In addition, all ETFs are commission free.  I highly recommend The Elements of Investing as it is on my Top Ten Investment Books.