A Wealth of Common Sense Summary By Ben Carlson

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A Wealth of Common Sense (2015) is a must-read for anyone who wants to learn how to achieve long-term success in investing.

The book provides simple and straightforward advice about what all investors should know, such as how to create a diverse and consistent strategy.

Through the author's unique blend of personal experience, psychology, history, and financial analysis, you will gain a better understanding of the investing world and develop the necessary skills to make sound decisions that can lead to enduring wealth.

A Wealth of Common Sense

Book Name: A Wealth of Common Sense (Why Simplicity Trumps Complexity in Any Investment Plan)

Author(s): Ben Carlson

Rating: 4.1/5

Reading Time: 14 Minutes

Categories: Money & Investments

Author Bio

Ben Carlson is a name you'll want to remember when it comes to financial planning, asset management and wealth management.

He's the director of institutional asset management at Ritholtz Wealth Management and the author of the well-known book, A Wealth of Common Sense.

Carlson is also behind acclaimed website - www.awealthofcommonsense.com - which provides valuable insight on topics such as approriate investor behavior, risk & return in investing, portfolio building, tax efficiency and more.

He has an impressive educational background too; he graduated summa cum laude from Middlebury College with a dual degree in economics and mathematics.

With his mastery of finance and high expertise in the subject matter, you can trust that this book contains pertinent advice for those wanting to make their money work for them.

How to Become a Successful Investor Using Common Sense

Successful Investor

With A Wealth of Common Sense, you can learn how to become an unbreakable investor – one that never goes bust!

It all starts with the fundamentals.

Use your common sense to create a solid investment plan and construct your portfolio in such a way that it suits your goals, temperament and lifestyle.

Additionally, discover typical mistakes so you can avoid them and the best approach for safeguarding your funds in these uncertain times.

Glean insightful advice such as why Yale’s investment strategies aren’t going to be beneficial to you, why sometimes neglecting your investment account is better than overworking it and how trying to imitate Marty McFly won’t do any favors for your portfolio either.

With this knowledge, you will be armed with the right tools and skills to breeze through turbulent times unscathed!

Don’t Copy Institutional Investors’ Strategies: Here Are a Few Things to Consider Before Investing as an Individual

It’s a mistake to assume that all investors are created equal.

Sure, the same strategies may work for some, but it might not be the same case for others.

This is especially true when it comes to institutional investors.

For one, these large-scale investors have more influence when it comes to negotiation of trading fees with investment platforms – something individuals cannot access.

Institutions can also employ full-time staff members to manage their portfolios on a daily basis which most individual investors don’t have the resources to do.

Moreover, even among institutions themselves there can be differences in funds available and what kinds of deals they get into as a result – take Yale University, for example.

The university enjoys hundreds of millions of dollars in grants and donations annually that are managed by Chief Investment Officer David Swensen whose portfolio management style is highly praised with 14 percent gains every year since mid-1990s.

These advantages are exclusive to nonprofits like universities who benefit from extended investment time horizons and tax exemptions which other types of private investors don’t get access to.

Avoiding Common Mistakes is Key to Being a Successful Investor

Successful Investor

If you want to start investing and be successful, the first thing you need to do is learn what not to do.

Too many people jump into the world of investing with no awareness of what can cost them dearly.

In his book A Wealth of Common Sense, financial advisor Nick Murray explains why it’s essential to identify common mistakes and avoid them if you want good returns on your investment.

For starters, don’t ever expect to get rich quickly!

That kind of thinking will only lead to disappointment.

Then there’s overconfidence — assuming that markets can be accurately predicted or that an asset that did well in the past will also do well in the future.

This kind of assumption won’t help you reach your goal; instead, it could land you in significant losses.

Conversely, never let yourself be beholden to popular opinion when making investing decisions.

Avoid following the herd blindly because it’s a surefire way to ruin your financial career — as seen during the infamous real estate bubble of 2006!

Investing might seem intimidating at first, but knowing what NOT to do is half the battle already!

It Takes More Than a High IQ to Achieve Successful Investing: Understand the Benefits of Having Emotional Intelligence and Staying Calm, Conscious, and Cautious

Successful investors are conscious of their emotions, stay cool-headed and wary.

What do we mean by this? It means they understand how their emotions can cloud their judgment when it comes to making investment decisions.

An emotionally intelligent investor is aware of how his mood may lead him to make unsuitable decisions, so he avoids them by exercising self control and being objective in his approach.

Take the example of 1989 Super Bowl Quarterback Joe Montana: Despite the opposing team having a three point advantage, Joe kept his composure and made use of the remaining time to make the perfect touchdown and win the game for his team!

It goes without saying that an investor has so remain unflustered and have an unwavering focus even when financial markets are down in order to be successful.

Another trait shared by these savvy investors is being wary of each situation before investing.

They know when not knowing something or lacking proper understanding about a particular market or scheme is going to prove costly.

For instance, if you wanted to invest in the Chinese stock market but have little knowledge about it, it would be prudent to first gather information before diving in head first (or else you might end up missing out on a developing bubble!).

So , if you want to start your foray into investing – keep your emotions in check, stay cool under pressure and never take on anything until you’re certain that you understand the situation properly!

The Close Relationship Between Risk and Reward: Understanding the Different Asset Classes for Investing

As you might expect, high rewards come with high risk when it comes to planning your investments.

Just look at the average yearly returns of stocks, bonds, and cash from 1928-2013 — all corrected for inflation: Stocks return 6.5 percent, bonds 1.9 percent and cash merely 0.5 percent.

The reason why stocks yield higher returns is that their value depends on the dividends and earnings they will give off in the future — a factor that involves a greater risk than in the other asset classes.

This is reflected by stocks’ bigger risk premium compared to those of bonds, which are less prone to big losses’d since investors receive their returns within a reasonable amount of time.

Cash is considered being the safest option but with much lower returns than those of stocks or bonds — it would take 150 years just to double your investment!

So if you’re looking for highest rewards, you have to accept that there’s always an inherent risk behind them.

Create Your Own Investment Plan: Strive for Success Like Nick Saban and the Alabama Crimson Tide

Investment Plan

To maximize your results in investment, it pays to create a plan tailored to your personality.

Ask yourself what your core values are and which style best suits your behavioral habits and circumstances.

Are you a risk-taker or a more conservative investor? What kind of stocks, bonds and other assets should you include in your portfolio for the best results? When do you plan on buying and selling, and what are the best ways to stick to that strategy and avoid unnecessary risks?

By creating an investment plan tailored to you, you can be sure that no matter what advice may come from self-proclaimed gurus or other trends, you will have already set rules for yourself about how and when to maneuver investments.

Just as Coach Nick Saban leads Alabama Crimson Tide football team with a consistent playbook so they win four national championships, if we create our own unique investment strategy, then we too can be successful in reaching our long-term goals.

Don’t Rebalance Your Portfolio Based on Fear or Excitement: Diversify and Take the Long View for Maximum Security

When it comes to looking ahead to the future and investing wisely, you want to make sure that you are in good shape.

The key to making this happen is creating a diverse portfolio and sticking with it!

It’s important to spread your assets across multiple classes and risk factors so that if something doesn’t go as planned, your losses will be balanced out by any gains made in other areas.

You don’t have to second guess yourself continuously either.

A study conducted by Fidelity Investments actually showed that the best performing portfolios were those where no changes had been made for years.

That’s why it’s better not to make any spontaneous changes, otherwise you’re putting yourself at risk of incurring extra trading costs, tax implications, and psychological burdens.

When changing things up in your portfolio is absolutely necessary, make sure there are substantial reasons more than just because you got scared or excited about something.

Market fluctuations should never be used as an excuse for reallocating your assets – even if it feels like a reasonable enough reason!

By diversifying cleverly and having faith in your decisions, you can trust that whatever the future throws at you, you’ll survive unscathed.

Wrap Up

The final summary of “A Wealth of Common Sense,” is a simple yet powerful message.

To become a successful investor, you need to be aware of your financial situation, your personality and emotion when making decisions, while also having a simple, consistent strategy and thoughtful approach that is put in writing.

Don’t just rely on your memory—you must have your investment plan laid out on paper to stay disciplined and make smart investment choices.

This is the key to managing investments successfully.

Arturo Miller

Hi, I am Arturo Miller, the Chief Editor of this blog. I'm a passionate reader, learner and blogger. Motivated by the desire to help others reach their fullest potential, I draw from my own experiences and insights to curate blogs.

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