Index funds were not in existence when Professor Malkiel first penned A Random Walk; he discusses the biggest differences in the financial world since 1973.


Mitch Tuchman: Burt, I read your book in college when it came out in the 70s. Unlike many books I’ve read, you’ve had 13 editions of it and unlike books I’ve read where a new edition comes out, the author just might put in a new opening or a little here, a little there. But your new additions are literally a chronicle of 50 years of massive changes in the financial services industry. If I look back when I began working with you 11 years ago and the one back then to this one, they’re almost different books. And so, the question I have is a lot of people I talk to think Wall Street’s rigged, everything’s rigged against them, the investor can never get ahead. But from reading your books, I feel the opposite, I feel like the world has really begun to bring things that really help the investor get ahead and get a fair deal.

If you were to look back in all these additions of your books and all the massive changes, what are the biggest things that have gone right for the individual investor? If they just do what they’re supposed to do according to the book and according to what we do at Rebalance, what would those big things be?

Burt Malkiel: Well, I think clearly, they’ve been tremendous changes. Probably the biggest one we’ve already talked about there were no index funds when the book was first published. There are now index funds and there are different kinds of index funds that we started off. The first index fund was not a broad-based index fund, it was an index fund of just for certain set of securities. We now have broad-based index funds, we now have exchanged traded funds. So, the instruments that are available for investors is just completely different. And one of the reasons that the book changes from period to period is to show the things that have changed and to indicate how some of these have helped the individual investor.

I say the main ones that have helped the individual investor is that fees have come down so sharply. The first index fund had a fee of almost one half of 1% a year. As I’ve said today, the fees are close to zero, we can now buy them on the exchange with exchange traded funds. We can diversify internationally, which also has helped, for example, to the extent that recently one has had European stocks, Japanese stocks, emerging market stocks. The diversification we were talking about a couple of minutes ago kicks in and you get a smoother and better performance. So, the big changes would be what’s available now and why it is actually better for the investor, including the fact that you can now trade with what is essentially zero commissions to buy these exchange traded funds, which themselves have essentially a zero fee.

But also, the reason I wanted to make changes is there are a lot of things that have changed that aren’t good for people and one of them is cryptocurrencies. I can’t tell you how many people have again said to me, “Oh my god, that stocks, that that’s old fashioned you don’t want that look, the future is the new cryptocurrencies.” Well, as those who followed markets know Bitcoin, which had sold for almost $70 a coin went down to just over $15,000. It’s still selling at under $20,000, avoiding some of these things and I give the reasons why I am extraordinarily skeptical about holding cryptocurrencies in a portfolio.

Not only the stuff that’s made things better for investors but the stuff that’s made things worse, the pitfalls, the Bitcoin funds of the world, it’s doing what’s right. Taking advantage of the things that have helped the small investor of which there are many, and we just mentioned some of them, and avoiding the things that can really hurt, that’s really what you need to do.

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