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One of the “few great investment books” (Andrew Tobias) ever written

Is the Walk Down Wall Street Still random?

Burton Malkiel, who turns 91 this year and recently published a 50th anniversary edition of his investing classic, “A Random Walk Down Wall Street,” discusses the changing landscape of investing with Kim Clark, Kiplinger’s Personal Finance.

Q: So much has changed since your first edition. What are the best developments for investors you’ve seen in the past 50 years?

A: Index funds. And Roth IRAs. People ought to use Roths because you can save for retirement in a tax-friendly way – without paying tax on any of the gains. Money market funds are a real boon for investors because bank accounts are earning essentially zero even when short-term interest rates are high. Zero-commission trading is another big deal.

Exchange-traded funds allow the individual investor to access funds with zero commissions. These are, without any question, advantages for the individual investor.

Q: What are the worst changes?

A: Some trading platforms have marketed themselves as investors’ best friends. They are lovely sites that made it easy and like a game to gamble by buying and selling stock. Some of the other things that have led many people to disaster are cryptocurrency, non-fungible tokens and the Reddit mobs.

Q: You wrote another book in 2008 on investing in China. Have your views on international investing changed?

A: I still recommend that you have some international diversification and some exposure to emerging markets. The valuations are very much more attractive in emerging markets than they are in the United States right now. Fifteen years ago, I would have said if you’re in one emerging market country, you should be in China. I’d probably pick India today.

Q: If the overall market is still expensive, why should people put their money into a broad index fund? Why shouldn’t they just buy bargain stocks or a value fund?

A: Because we know perfectly well that over the long haul, that simply doesn’t work. Over the long term, the old, boring total stock market index fund is the winner because the market is a random walk. On average, two-thirds of active managers are beaten by the index in any given year. And the ones who beat the index in one year are not the same ones who beat the index the next year. When you compound that over 10 years, you find that 90% of funds don’t beat the index.

And let me just conclude by mentioning one person who has beaten the indexes over his lifetime: Warren Buffett. Buffett has told his trustees he wants his estate invested in index funds. That’s a very good example of how even the guy who has actually done it knows perfectly well how hard it is and how unlikely it is that anyone’s going to do it in the future.

What I think is the most important lesson is that for people of modest means, who’ve never had big salaries, my book shows that they could accumulate a massive amount of money for retirement. What pleases me more than anything else is the letters I get from people who say that they read an earlier edition of the book, did exactly what I said, and they find now, much to their amazement, they have a comfortable retirement.

Editor’s Note: Kim Clark is senior associate editor at Kiplinger’s Personal Finance magazine,

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