Enrich Your Future

Create a winning portfolio by understanding the realities of modern investing

In Enrich Your Future: The Keys to Successful Investing, prolific author and investor Larry Swedroe shines light on the foundation of modern investing, enabling readers to create winning portfolios through simple yet effective strategies. Through a combination of analogies, personal anecdotes, and empirical evidence from peer reviewed journals, the book clearly explains how to play the winner’s game, instead of simply following the crowd, speculating, and making brokers and fund families wealthy in the process.

The book begins by first explaining how to put your portfolio on the right path, then how to keep a steady course during market uncertainty, when many investors fall victim to human nature, lose perspective, and make incorrect investment decisions based on fear and greed.

In this book, readers will learn:

• How prices of securities are established and why it's so difficult to outperform on a risk-adjusted basis
• How to navigate various key decision points when designing your portfolio
• How to develop a conceptually sound investment strategy and reach your financial goals faster
• How playing the winner’s game in investing will improve the quality of your life as well.

Revealing the true nature of the modern financial market and changing the way readers approach investing in general, Enrich Your Future: The Keys to Successful Investing is an essential guide for individual investors and financial advisors seeking to make more informed and prudent investment decisions.

Also by Larry E. Swedroe xiii

Foreword xvii

Introduction xxiii

Part One: How Markets Work: How Security Prices Are Determined and Why It’s So Difficult to Outperform

Chapter 1: The Determinants of the Risk and Return of Stocks and Bonds 3

Chapter 2: How Markets Set Prices 9

Chapter 3: Persistence of Performance 27

Chapter 4: Why Is Persistent Outperformance So Hard to Find? 35

Chapter 5: Great Companies Do Not Make High- Return Investments 39

Chapter 6: Market Efficiency and the Case of Pete Rose 47

Chapter 7: The Value of Security Analysis 51

Chapter 8: Be Careful What You Ask For 55

Chapter 9: The Fed Model and the Money Illusion 59

Part Two: Strategic Portfolio Decisions

Chapter 10: When Even the Best Aren’t Likely to Win the Game 67

Chapter 11: The Demon of Chance 73

Chapter 12: Outfoxing the Box 79

Chapter 13: Between a Rock and a Hard Place 83

Chapter 14: Stocks Are Risky No Matter How Long the Horizon 87

Chapter 15: Individual Stocks Are Riskier Than Investors Believe 91

Chapter 16: All Crystal Balls Are Cloudy 97

Chapter 17: There Is Only One Way to See Things Rightly 105

Chapter 18: Black Swans and Fat Tails 109

Chapter 19: Is Gold a Safe Haven Asset? 115

Chapter 20: A Higher Intelligence 121

Part Three: Behavioral Finance: We Have Met the Enemy and He Is Us

Chapter 21: You Can’t Handle the Truth 127

Chapter 22: Some Risks Are Not Worth Taking 133

Chapter 23: Framing the Problem 137

Chapter 24: Why Do Smart People Do Dumb Things? 143

Chapter 25: Battles Are Won Before They Are Fought 153

Chapter 26: Dollar Cost Averaging 161

Chapter 27: Pascal’s Wager and the Making of Prudent Decisions 167

Chapter 28: Buy, Hold, or Sell, and the Endowment Effect 173

Chapter 29: The Drivers of Investor Behavior 177

Chapter 30: The Economically Irrational Investor Preference for Dividend- Paying Stocks 185

Chapter 31: The Uncertainty of Investing 193

Part Four: Playing the Winner’s Game in Life and Investing

Chapter 32: The 20- Dollar Bill 199

Chapter 33: An Investor’s Worst Enemy 205

Chapter 34: Bear Markets 211

Chapter 35: Mad Money 219

Chapter 36: Fashions and Investment Folly 227

Chapter 37: Sell in May and Go Away 233

Chapter 38: Chasing Spectacular Fund Performance 235

Chapter 39: Enough 239

Chapter 40: The Big Rocks 243

Chapter 41: A Tale of Two Strategies 249

Chapter 42: How to Identify an Advisor You Can Trust 253

Conclusion 257

Appendix A: Implementation: Recommended Investment Vehicles 261

Notes 271

Acknowledgments 285

Index 287

LARRY E. SWEDROE is head of financial and economic research for Buckingham Wealth Partners. A prolific writer and contributor to multiple national outlets, he has authored eight books, co-authored nine others, and was among the first authors to publish a book explaining the science of investing in layman’s terms.

Enrich Your Future: The Keys to Successful Investing sets out to forever change the way you think about investing and how markets work. Writing for individual investors and financial advisors, prolific investor and author Larry Swedroe shares a lifetime of stories to provide investors with the hard evidence they need to stop them from throwing their hard-earned money away, making brokers and fund families wealthy in the process—and instead start playing the winner’s game.

The book begins by first explaining how to set a better course for your investments, then how to stay the course when market uncertainty forces other investors to lose perspective and make incorrect investment decisions based on fear and greed. In this book, readers will learn:

• How markets really work, how prices of securities are established, and why it’s so difficult to outperform on a risk-adjusted basis
• The key decisions you have to make when designing your portfolio (fewer than you may think)
• How human nature leads us to make investment mistakes—and how being educated will help you avoid them
• How to develop a winning yet simple long-term investment strategy that takes less energy but puts you on a path to reach your financial goals faster

Explaining how markets really work, changing the way readers approach investing and the nature of the market, and imparting sufficient knowledge to begin to make more informed and prudent investment decisions, Enrich Your Future: The Keys to Successful Investing is a must-read for individual investors and financial advisors looking to cut through the noise and successfully establish lifelong wealth.

PRAISE FOR ENRICH YOUR FUTURE

“This delightfully written primer uses popular stories, many from the sports world, to provide wise investment strategies and insightful tips for avoiding ruinous financial mistakes.”
— Burton G. Malkiel, author of A Random Walk Down Wall Street, 50th Anniversary Edition

“I own all of Mr. Swedroe’s many books. This one is my favorite.”
— Taylor Larimore, author of The Bogleheads’ Guide to the Three-Fund Portfolio

“Another winning book from Larry Swedroe. I recommend it especially to people managing their own retirement accounts. Larry shows that simple low-cost investing is the only winning strategy.”
— Jane Bryant Quinn, author of How to Make Your Money Last: The Indispensable Retirement Guide

“Enrich Your Future is a masterful collection of wisdom and insight by Larry Swedroe. Swedroe weaves a tapestry of short stories that effortlessly convey the profound principles of successful investing and once again distills complex financial concepts into simple, actionable advice. Whether you are a seasoned investor or just starting your financial journey, this book is a must-read. Larry’s unique ability to demystify the world of finance makes Enrich Your Future an invaluable guide for anyone seeking to build a secure and prosperous financial future.”
—Bill Schultheis, author of The Coffeehouse Investor

“If the conventional wisdom is, ‘Don’t just sit there. Do something,’ Larry shows us that it should be ‘Don’t just do something. Sit there.’ Indeed, consistently being long the ‘Larry Factor’ is how investors today can enrich their savings and their quality of life.”
—Ross L. Stevens, Founder & CEO, Stone Ridge Holdings Group

“Larry Swedroe shows investors how to protect themselves against their own worst enemies—themselves. He buttresses his valuable advice with citations of the most rigorous quantitative research but explains it all in readily understandable—and highly entertaining—terms. This book is a tour de force!”
—Martin Fridson, Publisher, Income Securities Investor

“Classic Larry Swedroe: Eminently readable and eminently important for anyone interested in their investments.”
—Andrew L. Berkin, Head of Research, Bridgeway Capital Management

“Many investors know that diversification, low cost, and tax awareness are the keys to being successful. But most can’t resist the urge to chase returns, buy individual stocks and use complicated and expensive investment products. In Enrich Your Future, esteemed author Larry Swedroe shows you how to construct a long-term investment portfolio, how to deal with difficult money emotions, and how to play the winner’s game in life and investing. A must-read for all investors.”
—Tom Cock, Co-Host, Talking Real Money

“Larry entertains as he busts toxic investing myths with illuminating personal stories and market histories: A wise and lively guide for investors to make the most of their resources.”
—Ed Tower, Professor Economics, Duke University

“If you want to build wealth, read this book! Larry Swedroe's, Enrich Your Future, is a well-written, fabulously researched treasure-chest of wisdom that will give you the best investment education that you've likely ever had. Swedroe's lessons are worth a million times the price of this book.”
—Andrew Hallam, Author of Millionaire Teacher, Millionaire Expat and Balance

“Swedroe has nailed his revolutionary Theses to the door of conventional finance wisdom. From the relationship of risk and return, randomness and behavioral finance, the book reveals state-of-the-art theory and grounds it in practical advice. Another rigorous work by the foremost investment researcher and writer working today.”
—Tobias Carlisle, Managing Director, Acquirers Funds®

“This book is the perfect antidote to all those enticing stories the financial media bombards us with each day. The most reliable route to long-term wealth is to trust the academic evidence—and it’s all here.”
—Robin Powell, Editor The Evidence-Based Investor