Millionaire Teacher summary

So, you’ve cut back on your expenses. You’ve stopped eating out every night and no longer go on expensive weekend breaks. Now your bank balance is starting to rise. 

What should you do next? Let the money build up in your account? Hope the interest on your savings keeps up with inflation?

You’ve cut your spending, and you want to start investing right away. Luckily for you, there are plenty of financial advisers to help you put your savings in the best possible place. All you need to do is follow their advice, right?

Well, not quite.

Managing your investments is like maintaining a healthy diet. That’s because when it comes to nutrition and when it comes to your investment portfolio, diversity and balance are key.

For example, even though you know that green vegetables are good for you, eating nothing but brussels sprouts for the rest of your life would be a bad idea. You also need to eat protein, other carbohydrates, and healthy fats. 

Jeremy Siegel, a professor of finance at the Wharton School of the University of Pennsylvania in Philadelphia, set himself an interesting task. He wanted to see if he could explain some of the biggest stock-market movements since 1885. So he sat down with the data and began to comb through the history books.

Unfortunately, even with all the records in front of him, he couldn’t account for most of the puzzling fluctuations or explain what caused the market to rise on some days and fall on others. And if a professor of finance can’t explain market changes with the benefit of data, historical reports, and years of hindsight, your chances of predicting future trends are practically zero.

When it comes to investing your money, the best option is to choose index funds and bonds. It’s really that simple – but for some people, it’s a hard program to follow. 

For them, the temptation to invest in specific stocks is just too great. And while this isn’t the smartest move, statistically speaking, that doesn’t mean all approaches are equally risky.