buy your broker a couple of porsches or retire 10 years earlier with low cost index trackers?
You may remember Kroijer from such Monevator blog posts as Why a total world equity index tracker is the only index fund you need or such books as Investing Demystified.
To sum up what Lars has to say in one sentence it is basically this:
You most likely can’t beat the market or pick an active fund manager who can, and should therefore invest in a low cost, diversified world equity index tracker instead and sleep easier at night.
Although I’m fully on board with this sentiment already, I haven’t quite gotten around to reading his book yet, and being the lazy so-and-so I am it was with great excitement that he emailed me the other day highlighting his short video series on simple low cost investing.
It’s as easy as watching a cute cat video online, except it’s about index funds! But if you spend six minutes watching the first video it may change how you think about investments. Also, it may save you reading 200 pages of an investment book or give you a good riposte for next time a broker calls you with a hot stock tip….
I don’t write too much about investing on here because there are plenty of people out there doing a much better job (such as Lars!) but if you read this blog and haven’t gotten going yet because you think it is a complex affair or are bamboozled by all of the options out there 1, then these videos are for you.
After viewing, investing should seem more simpler and you’ll probably be far less confused about all the choices out there. We are all much too busy to go through all the choice so the simple message is great. The philosophy that it’s ok to not be able to beat the market will help young savers who are too busy making headway in a career to spend evenings and weekends trying to outperform. In any case, I reckon it’s certainly worth 6 minutes of your time to see what you think…
If you want to skip straight to the videos then click here, if not here is a brief overview of what is in them:
Kroijer basically says that if you can’t beat the stock markets (which most of us have no chance of doing) then the best investment would be to buy the cheapest and broadest index tracker of stocks – and this is a world equity index tracker. You may have heard other people recommend to only buy the S&P500 (good enough for Warren Buffet and Jimmy L Collins), but Lars is taking it a step further and tells you to diversify across the world. Crazily this may mean that your equity investment portfolio is just one stock, an ETF that tracks the world equity markets. Almost too simple to be true, but it is the best path to take for 99% of investors!
Kroijer shows how an individual investor like most of us buying shares in Microsoft effectively competes with a super plugged in and well informed/resourced portfolio manager for an advantage (or edge) in trading that stock. He calls the portfolio manager Susan and shows us how she has better information, analytics, trading insight, management access and went to school with many of them, competitor analysis, historical context, gut feel, and so on, and it quickly becomes clear that if we ever thought we might compete with her we’re now feeling a little silly! But then he also shows us how very few of those same investment funds managed by pros like Susan actually outperform the markets over time. The fees eat away any advantage they may hold and only about 1 out of 10 investment funds outperform the market over a ten year period – the problem is of course that we have no chance of knowing which one it is ahead of time. Therefore: buy the broad market tracker.
Since equities are too risky for some investors Kroijer says that you can combine the world equity exposure with the lowest risk investment you can find – typically government bonds – and that you can combine the two (50%/50%, 75%/25%, 25%/75%, etc.) to suit your risk profile. And job done. Who said investing was difficult.
The main thing I like about Lars is that, apart from maybe getting some slight exposure for his books, he is not really making much or any money out of getting this simple message across. I don’t know about you but that makes me trust the message far more than some active fund manager giving you the hard sell on how wealthy their fund is going to make you oh and by the way we’ll only charge you 2% per year (whether your wealth increases or not!)
And finally the inspiration from the quote comes from video 5, where he reckons doing it the Lars way could save you around £300,000 which equates to a few Porches for your broker or could mean retiring 10 years earlier for you! Insane how just 2% a year adds up – just like compound interest increases your savings exponentially, it works for percentage costs that drain your returns and wealth as well.
a very quick bit on the TFS strategy
The way I implement Lars strategy, after admittedly farting around with some other rubbish funds which I haven’t gotten rid of yet, is to buy the following:
Vanguard LifeStrategy funds – These are great as you can do the bond splitting thing inherently in the fund, although they are not very well balanced globally. I did the 80/20 split (in favour of equities) but you may want higher bond allocation if you are later on in your FI quest.
Vanguard FTSE All-World UCITS ETF (VWRL) – This is a more globally balanced ETF so I think I’m gonna concentrate on this going forward.
Vanguard FTSE All-World High Dividend Yield UCITS ETF (VHYL) – Similar to the above but should chuck out higher dividends which sounds nice to me and good if you wanted to have income from your funds/ETFs
As usual please do your own research and do not take the above as a stock “tip” or anything like that, it’s just what I decided to invest in mainly after internalising Lars’ message and hunting out some low cost funds for myself, there is every chance there are better or lower cost funds out there (If you find any please do let me know!)
How do you prefer to invest dear readers?
Found any better funds than the ones listed above?
Or are you active all the way and laugh through your cash (from your latest 10 bagger) filled mouth at us index lovers?
now watch Lars in action
The series consists of five videos – here is a link to each one with a brief description:
Video 1: Investing Demystified – (Intro Overview – Part 1 of 5)
The Investing Demystified video series is based on the premise that most investor can’t beat the market (or pick investment funds to do so for them). Those investors should only buy world equity index trackers for their equity exposure, and can easily implement the simple and cheap portfolio tailored to their risk profile. They will most likely be far better off in the long run as a result!
Video 2: Investing Demystified – (You can’t beat markets or pick a fund to do so for you – Part 2 of 5 )
Far too many people believe they can beat the market – and far too few people have any incentive to tell them otherwise.
Video 3: Investing Demystified – (Only buy cheap World Equity Index Trackers – Part 3 of 5 )
The only equity investment you’ll need to hold is a world equity index tracker – it is cheap and diversified. Crazy yes, but it really can be that simple.
Video 4: Investing Demystified – (The simple portfolio to suit your risk – Part 4 of 5 )
Vary the proportion of your portfolio that’s allocated to the lowest-risk assets – cash and government bonds – to suit your risk profile.
Video 5: Investing Demystified – (Implementing the Investing Demystified portfolio – Part 5 of 5 )
How to select the right products for your hyper-efficient best-in-breed passive portfolio, and how to keep your strategy on track.
- Or god forbid you are waiting for muggins here to write some 5000 word masterpiece blog post on investing (sorry kids, not gonna happen!) ↩