One of the lessons I’ve tried to stress is that investing is not about choosing the right products. ETFs changed the game by giving the little guy sophisticated and low-cost investment tools—no doubt about that. But the fact is, whether you choose this fund from iShares or that one from Vanguard will likely have zero impact on your overall success.
That’s why I was pleased to read Chapter 4 of Larry Swedroe’s new book, Think, Act, and Invest Like Warren Buffett. The chapter is called “The Need to Plan: It’s Not Only About Investments,” and it explains why we need to look at the bigger picture.
“There is evidence showing the biggest drivers are your spending rate, your savings rate, and how long you work,” Swedroe told me in a recent interview. “They influence the outcome far more than an extra 1% return you might get if you are a brilliant investor—and we know active investors would kill for 1% or 2% of alpha. When you run a Monte Carlo you can see how much more important these factors are.”
What’s a Monte Carlo?
Running a Monte Carlo doesn’t mean driving a classic Chevy coupe.