Who is the author of A Wealth of Common Sense?

The author of A Wealth of Common Sense is Ben Carlson.

Money & Investments

A Wealth of Common Sense Book Summary - A Wealth of Common Sense Book explained in key points

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A Wealth of Common Sense summary

Name: A Wealth of Common Sense
Rating: 4.1 (160 reviews)
Author: Ben Carlson

Ben Carlson

Why Simplicity Trumps Complexity in Any Investment Plan

4.1 (160 ratings)

14 mins

Brief summary

A Wealth of Common Sense by Ben Carlson is an insightful dive into investing strategies and financial lessons. It teaches the importance of simplicity, planning for the long-term, and avoiding common mistakes made in investment decisions.

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Investments

Table of Contents

A Wealth of Common Sense
Summary of 6 key ideas

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Key idea 1 of 6

What’s in it for me? Become an unbreakable investor.

Maybe in another world it’s possible to become rich in an instant – just think of fairy tales, where the hero stumbles on an immense treasure, becomes the richest man in the kingdom and lives happily ever after. If you browse the internet for investment advice, some “experts” seem to live in that world, too (or maybe they just like fairy tales).

Sadly, their investment schemes don’t work in this world. But you can become a very successful investor. And to get there, you don’t even need to study finance. This pack will tell you how to use your common sense to make a solid investment plan and compose your personal portfolio – one that matches your goals, your temperament and your situation in life.

Additionally, you will learn about a few common and costly mistakes – and about the best way to keep your money safe in turbulent times.

You’ll also discover

why Yale’s investment strategy won’t do you any good;
the benefits of neglecting your investment account; and
why you’re not Marty McFly – and what that means for your portfolio.

Investors aren’t all equal.

Ever toy with the idea of adopting the same investment strategy as a filthy-rich company? Even if it was risky and complicated, it worked for them. Why shouldn’t it work for you, too? Well, for a number of reasons! Institutional investors face very different conditions to individual investors like you.

First of all, trading is less expensive for institutional investors. Why? Their size gives them the leverage they need to negotiate lower fees when dealing with investment platforms. Secondly, institutions employ several professionals, even full-time staff members, to manage their portfolios on a day-to-day basis. This is something that most individual investors simply can’t afford.

Not all institutional investors are created equal, either. The amount of funds available differs widely, and so too do the deals they get into as a result. Take Yale University. Yale’s endowment fund enjoys hundreds of millions of dollars in grants and donations annually. All of this is managed by chief investment officer David Swensen. So far, Swensen has done a great job. With 14 percent gains every year since the mid-1990s, Swensen’s portfolio management style is widely admired, and even earned its own name: the “Yale Model.”

Most institutions can’t invest on the same massive scale as Yale. And only large-scale investors, like Yale, can afford the high minimum investments required to get into the funds that are so attractive because of their low management fees.

Yale is not only a large-scale investor, but also a nonprofit. Nonprofits benefit from additional advantages that other investors can’t access. As a university, Yale has a perpetual time horizon. This means that there is no time limit on when an investment pays out. This is particularly handy because it means Yale is not obliged to restrict its strategy to short-term investments. Non-profits may also be exempt from paying taxes whereas a portfolio conducted on the same level by a private investor would face significant tax burdens.

In short, the investment strategies of institutional giants won’t help you out much. To succeed as an individual investor, you’ll need to find your own path. Before you set out on your journey, let’s investigate a few common mistakes that you’d be wise to avoid.

To start your investing journey, you need to know what not to do.

While many books explain what you need to do as a successful investor, few reveal what not to do. And yet being able to avoid bad habits and silly mistakes can have a huge impact. According to financial advisor Nick Murray, investors who correct common mistakes can boost their yearly returns by 3 to 4 percent.

If there’s one thing you should avoid from the outset, it’s expecting to get rich fast. Today, we’re nothing short of obsessed with discovering the key to immediate wealth. Truth is, it doesn’t exist! Anyone claiming to have the secret to instant success is either fooling themselves or attempting to fool you. Don’t pay attention to them!

Successful investors are emotionally aware, keep their cool and stay wary.

You might consider yourself fairly intelligent. But is this enough to achieve success? Depends. Despite what you might think, a high IQ isn’t the only marker of intelligence. It’s emotional intelligence that will keep you afloat.

Emotional intelligence is the ability to recognize and manage our own feelings and those that exist between people, says psychologist Daniel Goleman. In other words, we need to know how our emotions influence our actions and the people around us. But what does this have to do with investing?

High rewards come with high risk.

Risk is a word that gets thrown around a lot by investors. But it can mean many different things to different people. For some, risk is tied to losing money, whereas others see it as volatility. But in every case, risk is always attached to rewards, a relationship which also shapes your investment choices.

To put it simply, greater risks yield greater rewards. In other words, don’t expect big payouts when you play it safe. And by the same token, be prepared for a bumpy ride if you’re hunting big rewards. Nothing is free! This is the case with different asset classes in investment.

Create an investment plan tailored to your personality.

Ever taken a personality quiz? They’re a lot of fun, and they can come in handy when you start investing! Why? Because investors need to define who they are and find the label that fits them best.

Are you a trend follower, a short-term trader or a diversified asset allocator? The list goes on, and it’s your job to find one that fits your personality like a glove. Ask yourself what your core investment values are, and whether a certain style fits your behavioral habits and personal situation. Are you a risk-taker? Or do you want to hold your assets for years?

For your future’s sake: create a diverse portfolio and stick to it!

Have you seen Back to the Future Part II? In this film, Marty McFly travels to the future and buys a record of sports statistics to take back to the past. Armed with the knowledge of every sports event in the “future,” he hopes to make a killing betting on the results. But, unlike Marty McFly, we have no idea what the future will hold. But we can make our bets safer by investing in a diverse range of assets.

By diversifying across different asset classes and risk factors, we can prepare ourselves for the worst. If anything goes wrong in one class, our losses will level out through the gains made in the other classes. Having your portfolio spread across multiple assets might mean you miss out on extra big gains when one of your assets does well, but this is an acceptable sacrifice to make to safeguard yourself against going broke.

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What is A Wealth of Common Sense about?

A Wealth of Common Sense (2015) reveals how sound decisions can lead you to long-term success as an investor. These blinks provide the tips that every investor should know from the outset and explain how you can create a diverse, consistent strategy that will stand the test of time.

A Wealth of Common Sense Review

A Wealth of Common Sense (2015) by Ben Carlson is a valuable book for anyone interested in understanding personal finance and investment decisions. Here's why this book is worth reading:

Packed with practical, actionable advice, it helps readers navigate the complex world of finance and make informed decisions.
By combining relevant real-life examples and case studies, the book offers insightful perspectives on investing and avoiding common pitfalls.
The author's engaging storytelling keeps readers interested throughout the book, making it an enjoyable and informative read.

Best quote from A Wealth of Common Sense

Large pools of capital get a foot in the door [of certain deals] simply for having so much money at their disposal.

—Ben Carlson

Who should read A Wealth of Common Sense?

Investors who have suffered since the financial crisis
New investors feeling a little lost
Readers unsure about whether they should start investing

About the Author

Ben Carlson is the director of institutional asset management at Ritholtz Wealth Management, specializing in financial planning and asset management. He’s also the blogger behind acclaimed site www.awealthofcommonsense.com, which provides vital information about wealth management, financial markets and investor psychology.

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