John J. Brennan - More Straight Talk on Investing: Lessons for a Lifetime

1. Chapter 2
2. Chapter 4
3. Chapter 5
4. Chapter 6
5. Chapter 7
6. Chapter 8
7. Chapter 9
8. Chapter 10
9. Chapter 11
10. Chapter 13
11. Chapter 14
12. Chapter 15
13. Chapter 16
14. Chapter 17
15. Chapter 19
16. Chapter 21
17. Postscript

JACK BRENNAN

with John Woerth

Copyright 2021 by John J. Brennan. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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ISBN 9781119817338 (Hardcover)
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To my growing and loving family. Once we were 5 and now we are 11, with another on the way!

and

To the millions of Vanguard investors, thousands of crew members, and hundreds of investment professionals who have inspired me and taught me for four decades.

In July 2002, I began the preface for the first edition of Straight Talk on Investing by observing that the previous five years have been extraordinary in the history of investing. A record bull market swelled into one of the largest speculative bubbles in history. Then we saw the bursting of that bubble and the onset of a prolonged bear market, the worst one that the U.S. stock market has experienced since World War II. If many investors seem shaken and unsure of what to do, no wonder. Within half of a decade, we have been presented with a lifetime's worth of lessons about investing.

It is with a dose of cruel irony as I sit down to write the preface for the second edition in late 2020. The world at large is struggling with the coronavirus pandemic, which initially brought on a swift and severe drop in the global stock markets. While the markets quickly recovered, this marked the third shock experienced by investors in the first 20 years of the twenty-first century. Given this backdrop, it is no wonder investing can appear to be so daunting.

Albert Einstein once said, The only source of knowledge is experience. Maintaining a long-term perspective and controlling one's emotions are valuable lessons that investors can glean from trying times. However, the impetus for updating this book with a second edition goes beyond the teachings of these distinct market events. While the financial planning and investing principles covered in these pages are timeless, a considerable amount has changed in the nearly 20 years since the first edition. I've learned a bit more along the way, including framing investing as a series of trade-offsa theme that I will weave into this latest version.

At the outset, a new generation of investors has come of age and could benefit from understanding that sensible investing is an effective way to achieve financial security. I will note, too, studies indicate that members of the Millennial Generationone of the audiences for the initial bookare far more wary of the stock market than Baby Boomers. Their wariness is understandable, having seen their parents withstand the bear market of 20002002, or experiencing 20082009 and 2020 themselves. But participating in the market is a must for long-term financial security, and for this generation now in the prime of their investing years, as well as for Generations Z and Y, a primer may be helpful.

I also underscore the concept of thinking of yourself as a financial entrepreneurmanaging your financial life as an owner manages his or her business. And it is your financial life and no one else's, which is saying that financial planning and investing are highly, highly personal. While your age and goals may be similar to those of a friend, colleague, or neighbor, your investment program may be vastly different based on your ability to withstand risk, your means, and your time horizon, among many other factors.

The investing landscape has also changed considerably, and changed for the better in terms of choice, cost, and convenience. I genuinely believe that there has been no better time to be an investor.

Perhaps most obviously, the costs of investing have declined dramatically. Commissions or front-end loads, once as high as 8-1/2% on mutual fund purchases, have virtually disappeared. The average asset-weighted expense ratio of stock funds has dropped nearly by half, from 0.99% in 2000 to 0.52% in 2019roughly $100 on a $10,000 investment to around $50, according to the Investment Company Institute. Costs, risk, and reward are the three critical factors when considering any investment. But only cost is actually known in advance and, all things equal, lower costs will result in higher returns for investors. As you can see from the cost figures cited here, investors today have a strong relative tailwind compared to only a short two decades ago.

Products such as exchanged-traded funds (ETFs) and target-date funds, which were nascent in 2002, have become core investment tools today and offer low-cost, diversified exposure to the global stock and bond markets. Today, the growing number of environmental, social, and governance funds offer an opportunity to align your investing with your values. There are newly popular options, too, for using your money for charitable purposes, such as donor-advised funds.