Brad DeLong gives a correspondent some good investment advice. Here is the entry in full.
I don’t think I’m qualified to give investment advice, so I don’t. But if I did think I were qualified to give advice, I would say:
1. Large house–a bit larger than you think normal–financed by a fixed-rate mortgage. (Unless you are in New York, DC, SF, or LA, where things are weird right now.)
2. 401Ks–as much money as you can put into them and other tax-shielded vehicles.
3. Additional savings–automatic, and a few steps more than you are comfortable with: the future if very uncertain, and there may well come a point where you will want to have more money than you thought you might possibly need.
4. Vanguard, I say. Put your money in one of the equity-heavy Vanguard index funds, one that places a large share of its assets overseas. Vanguard’s fees are very low. You get all the risk-reducing benefits of diversification, and you get a high expected return. You can do better only if you are a professional investor–and only then if you are in the top fifth of professional investors.
5. For intellectual background… start with Burton Malkiel’s Random Walk Down Wall Street and Benjamin Graham’s The Intelligent Investor. For something more amusing, try Adam Smith [George Goodman’s] The Money Game. For something heavier, try Graham and Dodd’s Security Analysis.
My two bits: The reason for the house is that it is a forced savings plan with tax advantages. An obvious point but one overlooked by many (but not MR readers, I suspect) is that if your firm offers any kind of investment matching you must, must, must invest at least as much as the matching amount. Yes on Vanguard – Brad, in fact, is being generous to professional money managers (see here, for example). In addition to Malkiel’s A Random Walk Down Wall Street, I recommend Taleb’s Fooled by Randomness. Read these books so you will have the courage not to do dumb things.