the Preface

Preface: A Letter to My Family

4 min · 12 ideas

When it comes to passing on wealth, what truly needs to be handed down isn't assets — it's the ability to manage money.

Leaving money to your children will, at most, keep them fed and clothed for a few years. Teaching them to manage money and invest gives them an ability that never runs dry and that no one can take away — one that can keep them free from want all their lives, and keep the family prosperous generation after generation.

I wrote this book for my family. I also wrote it for everyone who wants to free their family from worrying about money — because I believe this is the basic financial education every family needs.

The method in this book is what I kept after more than a decade of learning, practicing and making mistakes — the simplest part, and the part that holds up best under scrutiny:

Each month, take the money you've saved and invest a fixed amount in passive broad-market index ETFs. Hold for the long term and don't sell at the highs. When a big drop or a crash comes, add more from new income.

This path isn't the least bit exciting, but it rarely hurts anyone. What it asks of you isn't cleverness but patience and discipline — not luck, but time.

In this book I've also been honest about the detours I took. I once believed I could sell at the top of a bubble and buy back at the bottom. I also once hoped to make money on interest rates with long-term US government bonds. Later, when I tested my methods against decades of data from the US, Japan and Taiwan, I found that some parts were wrong — so I changed them. What I hope my family learns isn't just a method, but also an attitude: facing your mistakes and correcting yourself.

If you remember only one thing, remember these words from Warren Buffett: "Life is like a snowball. The important thing is finding wet snow and a really long hill." Broad-market index ETFs are the wet snow, and your life is that long, long hill.

Reader's Guide: How to Read This Book

How the Book Is Organized

Three Ways to Read

• If you have only an hour: read the Preface; Chapter V, Section 1, "My Investment Method"; and Chapter V, Section 6, "Why I No Longer Sell at the Highs."
• If you're new to managing money: begin with Chapters I and II, and save up your first nest egg.
• If you're already investing: go straight to Chapters III through VI and compare them with what you're doing now.

About the Data in This Book

• For historical data, I've used official or original sources wherever possible, noting each source and the date I accessed it. For the backtests I ran myself, I've kept both the code and the results, so anyone can redo the calculations.
• Data goes out of date. For market data updated every week, see the "Market Thermometer" on this book's website.
• I've done my best to verify the source of every famous quotation. Where I couldn't find a reliable source, I either say so plainly or leave the quotation out.

A Necessary Note

This book shares my personal experience and views for the purpose of family financial education. The book and its website are non-profit and accept no advertising; they give no investment advice and recommend no specific financial product. They are purely about financial education and sharing knowledge. Investing involves risk, and past returns don't guarantee future results. Everyone's situation is different: before you make a decision, use your own judgment, and consult a professional when needed.