In this month’s issue of MONEY magazine they have an article titled “The Best Advice of All Time.” In it they look at 20 rules for success from some of the wisest people who have lived. I have pulled out a few of my favorites:
Many receive advice, few profit by it.
-Publilius Syrus, 42 B.C.
I have noticed this to be true more times than I can count. It is difficult looking back and realizing that things could be much different now, had you heeded some wise advice then. I think there is no more of an appropriate example than saving for retirement. How many of us received good advice when we were younger, but failed to realize how valuable the advice was until years or decades later?
For age and want, save while you may; no morning sun lasts a whole day.
Even back in Ben Franklin’s day having a emergency fund was a good idea.
The best way to own common stocks is through an index fund.
Many advisors will dispute this advice saying that you are better off with a professionally managed mutual fund. What is interesting is that the vast majority of mutual fund managers fail to beat the index. Yes, that is correct, they get paid hundreds of thousands of dollars even when most of them fail to beat the index.
You do not hear Warren’s advice too often, because most of the people who are giving the advice are getting paid by the mutual fund companies.
Bottom line: Index funds are generally a safer alternative than mutual funds and are a great starting point for a beginning investor.
Performance comes and goes, but costs roll on forever.
Another argument for the case of index funds is the costs associated with them. Many mutual funds will charge 1% or higher per year in expenses, and many index funds are lower than 0.3%. This may not seem like a big difference, but over the course of decades it adds up to huge amounts of cash.
For instance, lets say you invested $100,000 for 30 years and got a 8% return on your money. If you invested it in a fund that charged 1.5% per year in expenses you would end up with $639,440. Now if you had invested it in a fund that charged 0.2% you would have earned $947,608 in the same time period. That is a difference of $308,168!!