Long-term investing

Jack Bogle gave us the index fund. Warren Buffett has said most people should put their money into index funds.Personal finance bloggers—especially in the FIRE* community—spout “index fund” like it’s a nervous tick. And you might have noticed this blog has the same nervous tick.Some are worried about all this index fund investing. The concern is index funds will control so much of the market that it will lose its efficiency. I remember the same concerns in the 1990s when I was a stock broker about mutual funds in general, most of which were actively managed.Index funds will not break the market any more than actively managed mutual funds did. For one, there will still be plenty of people investing in individual stocks. And the hedge fund guys will do their share providing liquidity.

Periodically I get a message from a reader congratulating me on my financial success in life. The topic also comes up in consulting sessions more than I care to mention. The inquiry is always respectful and congratulatory. These people think I did something extraordinary when in fact it was actually a straight forward and simple process.

Part of my financial success is a direct result of living in my 50s. Time does a lot for net worth. Another huge advantage is I spent my entire adult life (except for those 14 months I played janitor at the church after I got married) self-employed. Business allowed me to control my income and taxes thereon more so than if I have a W-2 job at the local mill.

I’ve shared the story you are about to read many times in my office. By writing it down I hope it is easier to grasp the concept and how you can build a very large nest egg in short order. I get the feeling when I speak this concept it goes in one ear and out the other. I get it. However, this is too important—maybe the most important part of personal finance to reach financial independence—to just let it go as is. Once you grasp today’s message you have all the ammo you’ll ever need to control finances in your life and create a massive liquid net worth.

The best way to learn is by studying the best. Experience has value as long as it also has a foundation in knowledge. Reinventing the wheel again and again is a fool’s errand and not conducive to personal development.

Studying the best takes many forms. Working for someone at the top of their game is the best way to learn, but the opportunities to do so are limited. Formalized education communicates facts without always presenting the best in your selected field. The number one way to learn from the masters is to study them through intense research of their work. The greatest minds are available like never before. YouTube videos of their speeches and books and news articles on their practices give us massive quantities of material to learn from.

Today we will focus on a simple story shared by Charlie Munger, Warren Buffett’s friend and right-hand man at Berkshire Hathaway.