Enrich Your Future: A Review Of Larry Swedroe’s New Book

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Enrich Your Future: A Review Of Larry Swedroe’s New Book

Kathrin Spinnler
Kathrin Spinnler
Updated:

Larry Swedroe is a renowned investment professional and prolific writer, known for his influential work in promoting evidence-based investing. Over his decades-long career, he has helped shape the industry and has written 18 books advocating for low-cost, robust and diversified portfolios.

Larry is also a contributor to Bankeronwheels.com. That’s why Kathrin gives her personal view on the merits of the book for beginners, without formally rating it.

KEY TAKEAWAYS

  • Larry Explains Investing Through Stories – Larry Swedroe, who has published 18 books, takes a different approach in his latest work. This book is less technical, more accessible for beginners, and explains investing through engaging stories. It’s divided into four sections.
  • You’re Swimming With The Sharks – In the first section, Larry explains why it’s crucial to have your own strategy rather than playing Wall Street’s games. He discusses who you’re competing against today, why great companies aren’t always great investments, and why the vast majority of outperformance doesn’t persist.
  • Catastrophic Events Happen – The second section covers strategic portfolio decisions, such as why stocks are riskier than most investors realize, how to avoid catastrophic events, and why gold isn’t always a reliable hedge.
  • Should You Follow Dollar Cost Averaging And Invest In Dividend Stocks? The third section delves into behavioral aspects, highlighting why we are often our own worst enemies. Larry explores the widespread preference for dollar cost averaging and dividend stocks, and why these strategies are so pervasive.
  • How Succeed In Investing And Life – Finally, Larry offers some wisdom after decades in this industry on what it takes to succeed in both investing and life, including how to build a solid portfolio and, if needed, find the right advisor.

Each of the 42 chapters centers on a story, study, or analogy that clarifies an investing principle or debunks a common misconception, highlighting its impact on individual investors. Larry consistently emphasises that a diversified, passive portfolio almost always outperforms an actively managed one.

We’ve selected 7 key takeaways from the 42 chapters that, in my view, will resonate most with beginners.

The 7 lessons I learnt

1️⃣ The pool of victims is shrinking.

it used to be 90%. Now it's below 20%. You are competing against Goldman Sachs and Bridgewater.

Competition in financial markets differs fundamentally from competition in sports or most other fields. Fund managers and individual investors aren’t just competing against one person—they’re up against the collective wisdom of the entire investing community.

In the past, investors primarily competed against other “naive” retail investors. For instance, in 1945, 90% of market participants were individual investors. Today, that number has dropped below 20%, with the majority of trading volume now driven by institutional investors. This shift means there’s little opportunity to outsmart “inferior” investors. When you make a trade, it’s highly likely that a sophisticated hedge fund or professional asset manager is on the other side, armed with far more information than you.

Additionally, other factors make active investing increasingly difficult: the rising skill level of experts, the ability of retail investors to invest in factors through index funds, and falling trading costs.

2️⃣ You can't use your knowledge about an economy.

and even if you correctly predicted Individual countries' growth rates, they are not correlated to the markets.

One surprising fact relates to GDP. Imagine you could accurately forecast each country’s growth rate with 100% certainty and avoid those with low growth. Logically, you’d expect to outperform the market and achieve abnormally high profits, right?

It turns out, not really. Even with perfect foresight, you wouldn’t be able to predict stock returns because, surprisingly, there’s a negative correlation between individual stock markets and the economy. Knowing in advance which countries will have the highest GDP growth offers little, if any, advantage. A clear example is the performance of Emerging Markets—while their economies grew, some of their stock markets did not. This is yet another argument for Global Investing, as the GDP/Stock Market relationship may only hold at a global level.

3️⃣ Stocks will always be risky, no matter what people tell you.

History teaches us that things that never happened before do happen.

It’s crucial to heed Nassim Nicholas Taleb’s caution: “History teaches us that things that never happened before do happen.” While a longer time horizon can increase your ability to tolerate risks, it’s important to remember that the stock market is always risky, regardless of your investment horizon. There’s no guarantee that stocks will outperform bonds, and while a very long or even permanent bear market is unlikely, it’s still possible. This has happened in countries like Japan and Argentina, and there’s no assurance it won’t happen again in other global economies.

This inherent risk is precisely why stocks typically offer better returns than safer investments—without risk, there would be no premium.

4️⃣ Reasonable is often better than rational.

Dollar Cost Averaging may not be optimal, but it prevents paralysis.

Investors are often encouraged to use dollar cost averaging to reduce their risk. However, studies have shown that dollar cost averaging is an inferior strategy to lump sum investing. Research showed that lump sum investing is superior to investing money in 12 monthly instalments in about 70% of cases. But, theory can only get you so far. Often, an inferior strategy is better as long as you can stick to it.

For example, dollar cost averaging is the lesser of two evils if an investor is unwilling to take the plunge with a large sum right away. In the book, Larry lays out a few examples you can follow. It can prevent paralysis.

5️⃣ It's safer to assume god exists.

How optionality works - The consequences of being wrong may be catastrophic, your marginal cost is small.

In his book, Larry refers to Pascal’s wager, which is a philosophical argument that compares two options: living as if God existed and living as if he didn’t. In the first case, you go to heaven if you’re right, and you wasted some of your time and effort if you’re wrong. In the second, you spent your time well if you’re right, but you suffer eternal damnation if you’re wrong.

Thus, according to this wager, everyone should live as if God existed because the consequences of not believing in God and being wrong are much more catastrophic. Even if the chance is small that He exists, the risk is simply not worth taking.

The same goes for investing. Consider the consequences carefully before deciding on asset allocation. Even if the chance of a catastrophic outcome is small, take it into account. Some risks are just not worth taking, even if the benefits could be great. The same is true not just for investing, but also for the purchase of products like life insurance or owning company stock.

6️⃣ Investors prefer dividends for the wrong reasons.

if they use dividends On a TV set, they're less likely to regret it.

Portfolios that contain dividends are less likely to do well because they filter out a lot of companies, so they are not as diversified. There could also be different tax implications that make dividends less attractive. There are three possible reasons why investors prefer dividends:

  • Struggle to control spending – If they only spend the dividends, they are less likely to be tempted to overspend.
  • Mental ‘block’ to selling – This feels like they are losing assets, so some people are more comfortable only spending dividends.
  • Avoiding regret –  By using dividends and spending $600 on a TV set, they’re less likely to regret it than if they sold $600 worth of stocks.

Older investors who are in the drawdown phase more frequently prefer dividends than people in the accumulation phase. However, it’s largely suboptimal. You can create your own dividends, and often achieve higher returns.

7️⃣ Bear markets are a necessary evil.

Because they lead to higher risk and therefore return.

If we didn’t have them, the returns of stocks would be similar to those of treasury bills. The same goes for small value stocks. From 1927 through 2022, they returned 4.2% more per year than the S&P 500. However, they are even riskier and more volatile. For example, they fell by 42.4% from 1969 to 1974. In the same time, the S&P 500 only fell by 18.7%.

Bear markets must be considered when planning. Only invest in a way you can stomach and come up with a plan before the bear market hits, so you can stay the course.

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If you’ve enjoyed our high-quality guides, you will love Europe’s best Wise Investing newsletter even more. Join tens of thousands of individual investors who trust us.

☕ Every Saturday morning with your coffee, enjoy FREE:

✅ Investing guides & tools
✅ Curated insights on investing strategies, ETFs, brokers, early retirement & lifestyle
✅ Exclusive articles crafted for wise investors like you

📩 Bonus: FREE Portfolio Checklist! Sign up today and receive a FREE 2-page checklist to:

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SHOULD YOU BUY THIS BOOK?

larry's most accessible book

Even though a few technical parts exist

We are obviously a bit biased, as we like Larry’s work and since he’s a contributor to this site. 

That said, although Larry uses analogies – for example with sports betting – a few sections of the book can feel a bit more technical. Complete beginners may not be able to fully follow all chapters, but they should be able to grasp the key principles and apply them in their investing. 

The concepts are relevant for people all over the world, but the appendix has a selection of low-cost funds that applies mainly to US investors. Overall, it’s probably the most accessible book that Larry has written, and summarises in nice stories a veteran’s experience dealing with individual investors’ behaviors and strategies. We hope you will enjoy it as much as I did. 

Thank you for reading.
Good Luck and Keep’em* Rolling!

(* Wheels & Dividends)

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