The Education of an Index Investor

Rick Ferri coined the idea of The Education of an Index Investor.

The three elements and four stages changed how we talk about index investing.

Rick Ferri is known in the Boglehead world for hosting podcasts and writing books. The Education of an Index Investor may be his best contribution.

Three Elements of a Successful Investment Plan

There are three elements of a successful investment plan:

1. Philosophy – for index investors, this is universal. Low-expense diversified index funds
2. Strategy – this is personal. Which funds in which accounts? This is asset location and the individual way you implement your philosophy
3. Disciplined – be patient and stick with it. Automate.

Four Stages of an Index Investor’s Education

With the three elements in place, there are four stages of note in an index investor’s education:

1. Darkness—get rich quick. What hot stock tip can you get in the doctor’s lounge? I am pursuing a “hot stock tip that will make me rich quickly”
2. Enlightenment – reached by an epiphany that low-cost index investing is the way to go
3. Complexity – rabbit holes such as perfect optimal allocation, products, factor investing paralysis by analysis
4. Simplicity – you realize that none of the complexity matters; it is all about asset allocation. Complexity provides more money for the financial-industrial complex. Be simple and achieve your goals

Where are you in the Education Stages? Are you an Index Investor?

The Education of an Index Investor

Rick Ferri tirelessly advocates for simplicity and low fees. He is walking in Bogle’s footsteps. Continue the path of A Few Good Funds. The direct link is here.

This is an update to a blog I wrote five years ago when Rick’s tweet and podcast attracted my attention to his thoughts on the Education of an Index Investor.