Wealth of Experience: Real Investors on What Works and What Doesn't Review

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Wealth of Experience: Real Investors on What Works and What Doesn't ReviewThis book represents truth in advertising, it is exactly what the title and the book jacket claim it to be. The Vanguard Group, the world's second largest mutual fund company, conducted a detailed survey of six hundred of it's clients who had been successful enough investors to amass substantial wealth. From this survey it filtered and organized the information and insights which these investors provided into a comprehensive overview of how investors can maximize the probability of achieving their goals. While some readers may view this book as overly simple, it is in no way simplistic and in effect reinforces the importance of attributes of investment success that are often overlooked because of their apparent obviousness. It is an evcellent complement to the previous books published by Vanguard which were written by the current Chairman John Brennan and the previous chairman and often quoted champion of indexing, Jack Bogle.
In the interest of full disclosure and for the perspective of the readers of this review, I am an investment consultant and retired co-managing partner of an investment firm concentrating on the equity markets. Investing was my hobby early in life and I was fortunate enough after I changed careers to be successful doing something which I loved. I am also a long time Vanguard client utilizing their expertise in areas where my knowledge is limited, their low cost structure allows me to obtain excellent asset diversification in such areas as municipal bonds and Ginnie Mae securities. Finally, I am preparing to author a book on investments which I hope will appeal to I was interested in whether the lessons which the Vanguard respondents emphasized coincided with my beliefs.
This book is organized thematically, beginning with the importance of saving and developing investment goals and a plan to meet those goals. It then proceeds to a discussion of the importance of diversifcation, how to select your investments and how (and how often) to measure your progress and when it may be necessary to alter your course. It also discusses at length in a fair and balanced way the importance of low costs (a Vanguard advantage) and how to think about taxes. It briefly presents some thoughts on estate planning, not just for your heirs but as a broader legacy for future generations. And it concludes by summarizing "The Eight Commandments" for investment success and providing a useful glossary of the investment terms referenced in the book.
The structure and logical progression of the book make it exceedingly easy to read. Each chapter contains a discussion of the subject matter, often with explanatory charts or tables. There are usually quite extensive and interesting quotes from the participants in the survey, and then a concise summary provided by one of Vanguard's investment professionals. As a self taught individual investor, I was not surprised that I agreed with a lot of the advice (which in some cases goes against sophisticated Wall Street wisdom) and had shared a lot of the experiences included in the book. It emphasizes the basics heavily, especially the need to be patient and let the long term trend of the market and the power of compounding be your friend. And while such elements of investing as the necessity for diversifcation and the need to balance risk and reward seem obvious, they were lessons that even such successful investors as these often had to relearn after the extended bull market of the 1990's.
There are three aspects of this book about which I want to caution readers. First, as I have already mentioned, don't mistake it's simplicity for lack of acumen. However, it may be too elementary for those individuals with a lot of investment experience. E.g., it contains no specifics about choosing individual investments. Second, it attempts to help new investors learn from the mistakes of others, but does recognize that some of our most meaningful lessons inevitably come from our own mistakes. Thus, given the advanced average age of these investors, the lessons of this book may be difficult for young readers to internalize. Third and by far most important, while this is very useful advice, it doesn't reflect the full spectrum of methods and alternatives available to in order to become a successful individual investor. (As I and many others have done.) It stresses the factors which are important to Vanguard clients: low costs, index funds, broad asset class diversification and the usage of mutual funds as a core investment vehicle. These are all very valuable messages, but as the book specifically acknowledges they are just part of a broad range of alternatives that allow an individual investment success. Thus, the most important lesson of this book is clearly the importance of an investor's self evaluation: one's abilities, temperament, time priorities, risk tolerance, self confidence and ability and interest in continual self education. For me, investing is about continual learning, there is always some new and potentially profitable product, service or retailing technique; in addition, everything in the political economy impacts the markets. For others, such topics may be a collossal waste of time best left to the professionals. Reading this book should help you decide where you fit into that spectrum.Wealth of Experience: Real Investors on What Works and What Doesn't Overview

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