The Elements of Investing

Chapter 2. INDEX

"Diz 'n' me gonna win 50 games."

"We will land a man on the moon and return him safely in this decade."

"I shall return."

Each of these major plans met one great test: clarity. If your plan is clear, it will be easier for you to stay on plan. The other test of a good plan is that it works. It works for you because it's doable. It works in the market because it's realistic. It works because it helps you achieve your objectives.

Great coaches all agree with a simple summary of how to succeed in athletics: Plan your play and play your plan. That's why you'll want to develop a clear and simple financial plan and stay the course.

Here, we present a remarkably simple plan for investing that uses low-cost index funds as your primary investment vehicles. Index funds simply buy and hold the stocks (or bonds) in all or part of the market. By buying a share in a "total market" index fund, you acquire an ownership share in all the major businesses in the economy. Index funds eliminate the anxiety and expense of trying to predict which individual stocks, bonds, or mutual funds will beat the market.

Note

This simple investment strategy—indexing— has outperformed all but a handful of the thousands of equity and bond funds that are sold to the public.

This simple investment strategy—indexing—has outperformed all but a handful of the thousands of equity and bond funds that are sold to the public. But you wouldn't know this when Wall Street throws everything but the kitchen sink at you to ...