The Evidence-Based Investor

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  1. Three golden rules of investing

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    What are the golden rules of investing? There are few people better qualified to answer that question than DAVID BOOTH. David is one of the co-founders of Dimensional Fund Advisors, an asset management firm that bases everything it does on peer-reviewed academic evidence. There are, David explains, three things more than any other that investors need to do.

     

    We started Dimensional in 1981 around a set of beliefs.1 These ideas remain core to our business and key to the experience we deliver.

     

    Investing is a science

    Professional money managers have offered their services for centuries, but until the 1960s, there was no empirical way to hold them accountable for their results. When computers became powerful enough to analyse immense amounts of data, researchers could start gathering and learning from historical stock returns. Now economists could measure the success of different investment strategies compared with the performance of the broader market. The science of finance took off.

    Early pioneers of this new academic discipline discovered that:

    • Diversification reduces risk.
    • Uncertainty creates opportunity.
    • Flexibility adds value.
    • Conventional active management isn’t worth the cost.

    “Conventional active management” is just another way of naming a strategy that relies on stock picking, market timing, or both. Stated a different way, it’s people who think they can beat the market. Once historical stock-return data had been analysed, early empirical research showed that conventional active management delivered inconsistent returns and charged high fees. Not only did active managers not beat the market, they actually did worse than the market on average.2

    This revelation was a shock to the investment establishment, which didn’t know any better because stock picking was just the way things were done. Investing in the total market, using a highly diversified, long-term strategy, was shown to provide a better investment experience than trying to outguess the market by picking stocks or timing the market.

    In response to this groundbreaking research, a group of young money managers collaborated on developing the first index fund. I was a member of that crew of data dogs. Back in the early 1970s, we weren’t sure the strategy we were trying to implement would work. While academics had tested their hypotheses using data going back decades, we were using real money in real markets. Indexing delivered what it promised—it didn’t beat the market (it wasn’t supposed to), but it beat conventional active management. Millions of people all over the world have been able to realise their financial goals because of the growth and relative stability provided by index funds.

    At its best, science points the way to innovation. We started Dimensional so we could improve upon indexing. By trading with patience and taking advantage of the flexibility that comes from considering a range of securities with similar characteristics, we believed we could deliver better investment outcomes. And it has worked out that way.

    As new research identified ways to improve on the capitalisation weighting of index funds, we saw additional ways to add value. We designed portfolios that gave greater weight to smaller firms and lower-priced stocks.

     

    Investing is an art

    As with most sciences, the “facts” of investing are clear. Nearly all the academic insights of the past 50 years have been based on publicly available research. Contributions to the science of investing have been published worldwide and are widely accessible to anyone who’s interested in learning about them. Why, then, are there so many strategies available to those looking to invest their capital? What makes a particular money manager stand out when they all have access to the same research?

    I believe the answer lies in what I think of as “the art of the science”. The art of the science of investing comes into play when research is interpreted and implemented in public markets.

    Financial economics is a social science. Unlike math, which demands proofs and delivers exact answers, research in finance yields insights. These insights allow room for interpretation. And putting theory into practice requires judgment. In many ways, it’s similar to medical science.

    The art of the science of investing has two major components: engineering and execution. What do I mean by engineering? Everything that goes into deciding how to structure investment portfolios. This requires answering the question “What story is the data telling us?” In my mind, this is where human judgment becomes indispensable.

    Just as important as the data are the people who interpret it. Dimensional’s Research team strives to constantly improve our strategies using the most valuable new research. It’s critical that they be able to distinguish signal from noise. And that takes judgment.

    When I talk about execution, I’m referring to how an investment strategy is implemented. Once you know which strategies have been shown to improve results in the data, how do you bring them into the real world? As my friend Myron Scholes3 has said again and again, “Ideas are cheap. What matters is how you execute.”

    Back in 1981, when I ran our “trading department” from the makeshift desk of my Brooklyn apartment, I knew that I could get the best possible deals for clients by using a flexible approach to trading. Index funds simply couldn’t be flexible, because they had to track their benchmarks. We were beholden to no one but ourselves, so we could save money and direct that savings to benefit our clients.

    Another maxim to remember, this time from my colleague Gene Fama: “Models are not reality. If they were, we wouldn’t call them models—we’d call them reality!” All investment strategies can be simulated, but results will always be hypothetical. We have 41 years of proven, real-world experience — and real-world returns.

    An investment manager isn’t worth much unless the returns from their judgment — so-called “alpha”—add up to more than the fees they charge. Many people say they choose index investing because the fees are so low. But in my mind, they’re leaving returns on the table: acknowledging the science without implementing the art. At Dimensional, we more than pay for ourselves with the judgments we make every day. Trading flexibly, paying attention to detail, understanding risk, and standing up for the rights of the investor through investment stewardship of the stocks we hold — these result in changes that might seem small but have huge long-term impacts.

    Why? Because of the art of the science.

     

    Investing is a practice

    The science of investing has shown that there are structural ways to beat the market without trying to outguess it. Sometimes this idea can be hard to grasp, so I’ve found that analogies between life and investing can really help. One parallel that makes sense to me is comparing managing our money to managing our health.

    Our bodies, minds, and bank accounts make it possible for us to live the lives we want. So it makes sense to take care of them in the most scientifically sound ways possible.

     

    The golden rules of investing 

    Here, in my mind, are the ways we can use what we’ve learned from science to be the most responsible stewards of the things that matter most to us:

    1. Find a trusted professional who understands the science even better than you do.
    2. Adopt a long-term strategy you can stick with through thick and thin.
    3. Focus on crisis prevention, not crisis management.

     

    1. Find a trusted professional

    Most of us, given the opportunity, would rather trust an accomplished physician to manage our health than take on the responsibility ourselves. After all, physicians have specialised training, real-world experience, and access to tools outside the reach of the general public. Finally, they’ve taken an oath to prioritize the patient’s health over their own interests.

    In the same vein, independent financial advisors are trained to adapt insights from financial science to each client’s individual situation. They look at clients’ financial health holistically and work with them to create a long-term plan that aims to accomplish their unique goals. And they provide a trusted partner who can help when times are tough.

     

    2. Adopt a long-term strategy you can stick with

    In both wellness and investment management, consistency is key. Knowing what to do is less than half the battle — you have to actually do it, over and over again, to see results. This means sticking to your plan, even when you’re not sure it’s working. Your understanding of what’s right has to overpower your desire to quit when things don’t seem to be going your way.

    This might mean continuing to take that 45-minute daily walk even when you can’t see progress, or resisting the urge to get out of the stock market when returns are disappointing. The goal is cultivating a desire for a better future that gives you the willpower to tolerate uncomfortable feelings in the present.

    Both health and investment discipline contribute to another important kind of wellness: peace of mind.

     

    3. Focus on prevention and preparation

    From heart disease to bank runs, the best preparation is often prevention. By the time the crisis happens, you’ve either avoided it or you’re better equipped to deal with it.

    In health, this means drawing insights from scientific research about the habits and practices that lead to healthy outcomes, and then making them part of your routine in the most efficient way possible. In investing, this means essentially the same thing: adopting the insights from decades of empirical research, and then implementing them in an effective way at the lowest possible cost.

    When you have both science and a trusted professional on your side, you never feel alone when weathering life’s inevitable storms. You’re well-equipped to stick to a long-term strategy that can best position you to achieve your goals. And even when things don’t go exactly the way you planned, you know you’re still probably going to be OK.

    That’s peace of mind money can’t buy.

     

    FOOTNOTES

    1. Dimensional Fund Advisors LP founded in 1981.

    2. 2Eugene F. Fama and Kenneth R. French, “Luck versus Skill in the Cross-Section of Mutual Fund Returns,” Journal of Finance 65, no. 5 (2010): 1915–1947.

    3. 3Independent Director, Dimensional Funds, 1981-2021

     

    DISCLOSURES

    The information in this material is intended for the recipient’s background information and use only. It is provided in good faith and without any warranty or representation as to accuracy or completeness. Information and opinions presented in this material have been obtained or derived from sources believed by Dimensional to be reliable, and Dimensional has reasonable grounds to believe that all factual information herein is true as at the date of this material. It does not constitute investment advice, a recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. Before acting on any information in this document, you should consider whether it is appropriate for your particular circumstances and, if appropriate, seek professional advice. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorised reproduction or transmission of this material is strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.

    This material is not directed at any person in any jurisdiction where the availability of this material is prohibited or would subject Dimensional or its products or services to any registration, licensing, or other such legal requirements within the jurisdiction.

     

    PREVIOUSLY ON TEBI

    Self-attribution bias in active management

    What do the changes at SJP mean?

    Settling for average? No, indexing is a winning strategy

     

    FIND AN ADVISER

    As David booth says, the evidence is clear that you are far more likely to achieve your financial goals if you use a trusted professional to help you and have a long-term plan.

    That’s why we offer a service called Find an Adviser.

    Wherever they are in the world, we will put TEBI readers in contact with an adviser in their area (or at least in their country) whom we know personally, who shares our evidence-based investment philosophy and who we feel is best able to help them. If we don’t know of anyone suitable we will say.

    We’re charging advisers a small fee for each successful referral, but you will pay no more than you would if you contacted the adviser directly.

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    © The Evidence-Based Investor MMXXIII

     

     

  2. LTCM: Have we learned the lessons from its collapse?

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    “Those who fail to learn from history are doomed to repeat it.” 
    — Winston Churchill

     

    One of the most dramatic financial collapses in history happened 25 years ago this month. The demise of the hedge fund Long-Term Capital Management (LTCM) provides important lessons. Yet, as ROBIN POWELL explains, many investors, including professional investors, have yet to learn them.

     

    Long-Term capital Management launched in 1994, the brainchild of a group of prominent academics, including Nobel laureates Myron Scholes and Robert Merton. Between them, they developed sophisticated mathematical models for pricing options and managing risk.

    These models were based on historical market behaviour. They were designed to identify arbitrage opportunities and profit from small price discrepancies between various financial instruments.

    For a time, LTCM appeared to be very successful. It generated large profits and attracted sizeable investments from institutions and wealthy individuals.

    But, in 1998, a series of unforeseen events resulted in huge losses for the fund. LTCM’s positions were highly leveraged — in other words, it had borrowed money to place bets. Those bets turned sour when Russia defaulted on its debt, causing market turmoil. The fund’s high level of borrowing magnified its losses.

    LTCM also had liquidity issues, which meant the fund’s managers struggled to exit their positions without incurring even further losses.

    Eventually, the crisis threatened not just LTCM’s own survival but also the stability of the global financial system. A consortium of major banks and financial institutions stepped in to bail the fund out. That prevented what could have been a catastrophic chain reaction across the markets.

    READ THE FULL ARTICLE HERE

     

    If you found this article interesting you might want to read the following extract from The Missing Billionaires by Victor Haghani and James White. Victor Haghani was one of the founding parters of LTCM, and in this extract he explains what he learned from the fund’s collapse:

    The puzzle of the missing billionaires

     

    ABOUT TIMELINE

    This article was written by TEBI’s ROBIN POWELL for Timeline. One of the UK’s most innovative financial technology companies, Timeline provides financial planning software and evidence-based investment solutions to independent financial advisers across the country.

     

    FIND A FINANCIAL PLANNER

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    If you would like us to put you in touch with a financial planner in your area, who shares our evidence-based investment philosophy, just click here and send us your email address, and we’ll see if we can help.

     

    © The Evidence-Based Investor MMXXIII

     

     

     

  3. David Booth: five timeless investment lessons I’ve learned

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    It’s 40 years ago this week that Dimensional Fund Advisors was founded. Here are five timeless investment lessons that one of its founders, DAVID BOOTH, has learned in that time.

     

    Early in my career, I was lucky enough to work on one of the first index funds. It was an incredibly exciting time, because before that the only equity option for investors was to pick stocks. The academic evidence from people like Gene Fama—my graduate school advisor, who would later be recognised as a Nobel laureate — showed there was a better way to approach investing, but no one had put it into practice yet. So we did. Forty years ago, we started Dimensional Fund Advisors because we believed there was a way to invest that was better than stock picking and improved upon index funds.

     

     

    Today, more than half of the wealth held in mutual funds and ETFs is in index funds, and Dimensional has grown to more than $600 billion in assets under management, largely through word of mouth and the growth of our clients.1 As an industry, we’ve made incredible progress driving down costs, encouraging diversification, and developing innovative solutions that benefit investors. These advances have been profound for investors, and I believe it’s just the beginning.

    Yet despite all of the progress, I believe people keep falling into the same old traps. They might chase the latest fads and keep picking stocks. (Just in the past year, we’ve seen frenzies surrounding FAANG stocks, Tesla, and GameStop.) They might try to time markets. Too many people may have sold at the bottom of the financial crisis in 2009 and at the start of the pandemic in 2020. These investors can hurt their chances of long-term success while adding to their anxiety. Investing doesn’t have to be that way.

    We need to change the conversation so that people can invest better—and live better. As we celebrate our 40th anniversary as a firm, I’ve reflected on what I’ve learned over the years that I wish every investor could know.

     

    1. Gambling is not investing, and investing is not gambling

    Gambling is a short-term bet. If you treat the market like a casino, and you’re picking stocks or timing the market, you need to be right twice — in an aim to buy low and sell high. Fama showed that it’s unlikely for any individual to be able to pick the right stock at the right time — especially more than once.2 Investing, on the other hand, is long term. While all investments have risk, there are things you can do as a long-term investor to manage those risks and be prepared. As my dear friend and Nobel laureate Merton Miller said, “Diversification is your buddy.” Investing, to me, is buying a little bit of almost every company and holding them for a long time. The only bet you’re making is on human ingenuity to find productive solutions to the world’s problems.

     

     

    2. Embrace uncertainty

    Over the past 100 years, the US stock market, as measured by the S&P 500, has returned a little over 10% on average per year but hardly ever close to 10% in any given year. The same is true of dozens of other markets around the world that have delivered strong long-term average returns. Stock market behavior is uncertain, just like most things in our lives. None of us can make uncertainty disappear, but dealing thoughtfully with uncertainty can make a huge difference in our investment returns, and even more importantly, our quality of life.

     

    3. Implementation is the art of financial science

    The way to deal with uncertainty is to prepare for it. Without uncertainty, there would be no opportunity. We always emphasize that risk and expected returns are related, which means you can’t have more of one without more of the other. Make the best-informed choices you can, then monitor performance and make portfolio adjustments as necessary. Come up with a plan to get back on track in case things don’t go as expected. And remember, you can’t control markets, so don’t blame yourself for results outside your control — try to relax knowing you’ve made the best-informed choices you can. A trusted financial adviser, a fiduciary who puts your interests first, can help you cultivate this sort of discipline and long-term perspective.

    I was compelled to approach investing differently by the research Fama and other leading academics were doing to better understand markets and returns. There’s general agreement on what financial science tells us, yet so much can be gained or lost in application. Just as some sports teams can consistently execute their strategies better than others, investment professionals can consistently add value by dealing better with market mechanics.

    Bob Merton, our colleague, and Myron Scholes, an Independent Director of the US mutual funds, were recognised as Nobel laureates for their options-pricing model, which shows that flexibility has value. Great implementation requires paying attention to detail, applying judgment, and being flexible. That’s what we’ve built our firm to do. We start with a fairly simple notion about markets and expected returns, and the real value comes from how we implement those ideas every day. It’s important to us that clients understand we’re advocating for them along every step in the investment process. What do we mean by “advocating?” That when it comes to implementation, the little things add up. We fight for every basis point, never forgetting that we’re investing money our clients have worked lifetimes to save.

     

     

    4. Tune out the noise

    If an investment sounds too good to be true, it probably is. When people ask me if I’m investing in the latest shiny investment idea, I tell them, “If I don’t understand something, I don’t invest in it.” That’s because I’ve seen a lot of fads come and go.

    TV pundits handing out stock tips? Friends letting friends in on their next big investment? I see these more as entertainment than information. Stress is induced when people think that they can time markets or find the next winning stock, or that they can hire people who can. There is no compelling evidence that professional stock pickers can consistently beat the markets.3 Even after one outperforms, it’s difficult to determine whether a manager was skilful or lucky.

    The good news is you can still do well without having to find what markets might have missed. While markets are unpredictable and may even seem chaotic at times, they have an underlying order. Buyers and sellers come together and trade, which is the activity that sets market prices. Unless each side agrees to a price, they don’t trade. New information and expectations about returns are quickly incorporated. Consistently finding big winners is difficult, but everybody can have access to the expected returns that a diversified, low-cost portfolio can generate.

     

    5. Have a philosophy you can stick with

    It can be difficult to stay the investment course during periods of extreme market volatility. At the end of March 2020, the S&P 500 was down nearly 20% for the year.4 Record amounts of money exited from equity mutual funds and went into money market accounts. Those investors who stayed out of the equity market missed out on the subsequent 56% gain in the S&P 500 over the next 12 months. We will all remember 2020 for the rest of our lives. It serves as an example of how important it is to maintain discipline and stick to your plan.

    By learning to embrace uncertainty, you can also focus more on controlling what you can control. You can make an impact on how much you earn, how much you spend, how much you save, and how much risk you take. This is where a professional you trust can really help. Discipline applied over a lifetime can have a powerful impact.

    These are the ideas upon which we’ve built our firm. Back when we started, we thought there was a better way to invest than what was on offer. We all shared a philosophy about markets and how they work. We believed that the transparency of markets and the way they incorporate all available information in real time could make investing fair to all. We believed we could add value — not just to the bottom line, but by helping change the industry for the good of all investors. We saw a better way, and we got to work.

     

    FOOTNOTES

    1. 1As of December 31, 2020, Dimensional had $601B in firmwide assets under management, USD (in billions)
    2. 2Fama, Eugene F., and Kenneth R. French. 2010. “Luck versus Skill in the Cross-Section of Mutual Fund Returns.” Journal of Finance 65(5): 1915–1947.
    3. 3For details, see Dimensional Fund Advisors’ Mutual Fund Landscape report.
    4. 4S&P data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
      Indices are not available for direct investment. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment. Decrease of 19.6% was from January 1, 2020–March 31, 2020. Increase of 56.35% was from March 31, 2020–March 31, 2021.

     

    DISCLOSURES

    Past performance is no guarantee of future results. Actual returns may be lower. Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful. Indices are not available for direct investment. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment.

     

    Interested in more insights from Dimensional? Here are some other recent articles from this series:

    Are YOLO traders undermining efficient markets?

    Should a top-heavy stock market worry us?

    Why the disconnect between the economy and markets?

     

    © The Evidence-Based Investor MMXXI

     

     

  4. Victor Haghani: Sensible investing in a nutshell

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    Victor Haghani is a most unlikely convert to index funds.

    Born in New York and educated at London School of Economics, he followed his Iranian father into trading securities. He was an arbitrageur at Salomon Brothers, and then at the hedge fund company, Long Term Capital Management.

    Famed for its highly leveraged trading style, LTCM collapsed spectacularly in 1998 and became the subject of one of the biggest bailouts in Wall Street history. Haghani was later described, in Roger Lowenstein’s book, When Genius Failed, as “a natural trader” possessing “an intuitive feeling for markets, and a volatile, impulsive streak”.

    How things have changed. About 15 years ago, during a long sabbatical from the financial industry, Victor Haghani underwent a conversion. Beating the market, he realised, was exceedingly difficult, especially after costs, and a far better way to invest is via low-cost index funds.

    In 2011, he founded the online investment manager Elm Partners. Based in London, it serves high-net-worth investors globally, including the US, and it charges a fee of just 12 basis points.

     

    Victor Haghani

     

    I must say, I’ve had some interesting conversations with him about his background. LTCM famously counted Nobel Prize-winning economists Myron Scholes and Robert Merton among its board members — a fact that, as an advocate of investment strategies based on academic evidence, I’m often reminded of by those who disagree with me.

    Without claiming to be an expert on the subject, it seems to me that the strategy at LTCM had very little to do with what I would call evidence-based investing at all. It was, in many ways, the complete opposite of it.

    As anyone who’s seen his TedX presentation, Where are all the billionaires? And why should we care?, will know, he’s an extremely articulate advocate for long-term, low-cost, highly diversified investing.

    I’ve recently made a video with Victor called Sensible Investing in a Nutshell, in which he revisits the issues raised in that TedX talk. At the last count there were just over 500 billionaire families in the US; but, if the 4,000 millionaires alive in 1900 had invested their money passively in the US stock market, and the money had simply been left there to grow, there would be 120,000 billionaire families today — in other words, 240 times as many as there actually are.

    So, why are there so few billionaires amongst us today? Two reasons, says, Victor. The first is the cost of active fund management. The second, and even more important factor is behaviour — in other words, the way we can’t help ourselves tweaking our portfolios, buying this and selling that, and trying to dip in and out of the market at just the right time.

    The video concludes with some simple, no-nonsense advice for young people on how to invest for the future.

    I hope you enjoy watching it as much as I enjoyed making it. And if you know someone who’s starting to think about investing, please show it to them; you’ll be doing them a big favour.

     

     

    ROBIN POWELL is the founder and editor of The Evidence-Based Investor. A freelance journalist, he runs Regis Media, a specialist content marketing consultancy for financial advice firms around the world. You can follow him on Twitter and on LinkedIn.

    The Evidence-Based Investor is produced by Regis Media, a boutique provider of content and social media management to financial advice firms around the world. For more information, visit our website and YouTube channel, or email Sam Willet or Christina Waider.

     

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    Video transcript:

    According to Forbes Magazine, there were, at the last count, just over 500 billionaires in the US. 

    But the former hedge fund trader turned index investor Victor Haghani says therein lies a puzzle that has important implications for how we invest. Here’s a clip from a TedX video he presented called Where are all the billionaires? And why should we care?

    Victor Haghani says: “Let’s start with this fact. $1 million, invested passively in the US stock market, in 1900 would have grown to $30 billion today. Ka-ching! Now, you might say, wait a minute, $1 million was a lot of money in 1900, and you’d be right, it was. However, historical records indicate that we had 4,000 millionaires in the US in 1900.

    “Now, if each one of those millionaire families had children at the average rate, we would have 30 billionaire families today for each millionaire family back then. That conveniently means that those 4,000 millionaire families in 1900 would have spawned 120 millionaire families living today if only their investments had been able to manage the return of a passive investment in the US stock market.”

    The question then is, why haven’t investors been able to match the returns delivered by the stock market?
    Well, aside from consumption and taxes, Victor says there are two main reasons. The first is the cost of investing — in other words, the commissions, fees and spreads that the financial industry extracts from investors.

    There’s a very simple way to reduce those costs — use low-cost index funds. But most investors continue to favor more expensive, actively managed funds instead. What are the reasons for that?

    Victor Haghani says: “One is that there’s just a feeling that we as humans have of exceptionalism, that we all think we’re a little bit above average in whatever we do. So the idea that hope springs eternal among people in whatever it is that we’re doing I think also applies to investing. So despite knowing that, on average, actively managed funds are not going to do very well, we hope that we can identify the ones that will do well.

    “The second thing is that, as consumers, we’re conditioned to feel that when we pay more we’re getting something that’s better. Investing is the exception to that, where paying less is actually giving us a better outcome and a better product.”

    So, how much is it costing investors to use actively managed funds?

    Victor Haghani says: “Today, on average, investors who are not indexing are probably costing themselves one to two per cent, when you add up all of the costs in terms of the frictions and the fees.”

    But, says Victor, there’s a bigger reason why investors fail to capture market returns, and it may surprise you. In the words of Pogo, “we have met the enemy and he is us.”

    Victor Haghani says: “I think the culprit here, very simply put, is return chasing. It’s investors moving their money slowly into whatever it is that’s doing best at any moment in time, taking their money away from whatever has been doing worse. And that return chasing is real cause of a shortfall in investor returns.

    “A number of different researchers have analysed those numbers, and what they generally look at is what’s called investor returns and fund returns. So they look at if you invested a dollar in a particular fund, what the return would have been if you’d just kept it in the whole time. And that’s called the fund return. And they compare that to what they call investor returns. So they look at the cash going in and out of each fund, and they look at the internal rate of return on that. Well, guess what? They find that three per cent is very often the difference the fund return and this investor return.”

    Three per cent a year is a huge drag on your investment returns — especially when you add it to the one or two per cent you’re losing by using active funds. What, then, does Victor Haghani recommend that young people do?

    He says: “Try to save as much as you can. Try to save 15% of your income. Put it into a low-cost global equity index fund. Put most of it into that, because you’re your and your human capital is more than your financial capital, so maybe put 90% of your money into that. Do it in a tax-efficient way if possible, if you have the ability to put it in a tax-advantaged retirement account. And just stay the course. Keep putting money in there until you’r either old or rich. And then you can drop your 90% lower.”

    So, there you have it — sensible investing in a nutshell.

    If more people start investing this way now, we’ll have a much better chance of avoiding the looming pensions crisis. And, come the turn of the next century, there’ll be far more billionaires around than there are today.

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