Book Review: The little book of common sense investing

Since I started to pay closer attention to my finance, I’ve read a few books about investing and finance. I’m going to review them on this blog.

The first book I have read is “The little book of Common Sense investing”, by John C. Bogle. It is coming from the founder and former CEO of the Vanguard Mutual Fund Group. This book is highly recommended by a lot of people in the bogleheads community, so I decided to give it a try.

This is a good book, with sound basis. The idea of the book is simple: You should only invest in low-cost, no-load, mutual funds that replicate the entire market (index funds) and you should buy-and-hold these funds for as long as you don’t need the underlying money (no market timing). This message is quite repeated along the book. I honestly think that this book insists upon itself. It could have been much shorter than it his. Most of the chapters are simply showing, using strong facts, that most active funds cannot beat the market. Therefore, index funds are better for indexing, since over a long time, your returns will the same as those of the market. Moreover, the costs of passive index funds are generally significantly lower than active funds. The costs of the funds is actually one of the only things you have control over, therefore you should always minimize them. However, this book is quite well written and there a lot of strong facts with evidence. The author advice mutual funds rather than Exchange Traded Funds (ETFs). However, it is stated that ETFs are a good alternative as long as you don’t trade them but buy them and hold them.

Let’s review the main points of the book:

  • Prefer passive index funds rather than active funds
  • Use index funds that replicate the entire stock market or the entire bond portfolio
  • Choose the funds with the lowest costs (no-load, low TER)
  • Buy and hold for long-term
  • Never time the market
  • You can use ETFs but not trade them (buy-and-hold)
  • Minimize taxes

Overall, it’s a good book. If you already are convinced that passive index funds are better than active funds or stock selection, then, you probably wont’ learn anything new in this book. On the contrary, if you prefer active funds or prefer to hold stocks, you should probably read this book to get a different point of view. On the other hand, it lacks in advices on exactly which ETF to use, which allocation to bond and to international stocks, but it’s a very good starting point.


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