Several years ago, I received an email from a college music student who wrote: "I want to learn everything about the market and am willing to do whatever it takes to be a great investor." 

My reply essentially was that successful investing can be very simple. Unfortunately, we don't know this until we learn all the complex ways people invest without better results - and usually worse.

For those just starting out, the first thing you should do is to read a good book on the subject of fund investing. Even those of us more experienced investors like to continue our educations. I have read more than 300 books about investing. And over the years, I've subscribed to hundreds of investment publications. 

Most are about how to beat the market and worse than reading nothing. (The best list of investment books that I have found was prepared by Alex Frakt and can be found on the Diehards.org site).

Even the most carefully selected books can usually be found at any good library or bookstore. A great place to start is with the works of Jack Bogle. In my view, he is the most experienced, knowledgeable, practical, honest and articulate teacher of mutual fund investing in the world.

Beware of any complex investing scheme which contradicts his teachings.

Planting a Seed 

Reading just one good book on the subject of fund investing almost guarantees to put an investor, whether young or old, on the right track for investment success.

Another key point is that successful investing does not appear logical. This is the primary reason most investors seriously underperform a simple total market index fund. Successful long-term investing contradicts many of the things we take for granted:

"Don't settle for average. Strive to be the best."

"Listen to your gut - they're usually right."

"Listen to experts in the media."

"You get what you pay for."

"Past performance is the best indicator of future performance."

"If things are not going well, do something."

Unfortunately the above "truths" seldom work for investors. In fact, it's just the opposite. This is why we need to read a good book about investing so that we understand why and how we must change our thinking if we want to be successful investors. 

So how do you get started? If you have earned income, open a tax-free Roth IRA and fill it with an appropriate lifecycle fund. If you are not eligible for a tax-deferred account, buy a tax-efficient Total Stock Market Index Fund and put it in a taxable account. Later you can add more funds for additional diversification.   

It is very important to use only tax-efficient funds that you can hold "forever" in taxable accounts. (In tax-deferred accounts, of course, we can exchange funds without capital gains taxes.)

Keep in mind that the market is very efficient. It's like an auction where millions of very well-informed people are constantly making offers and bids. It is highly unlikely that you can select stocks, bonds or mutual funds better than random chance.

Counter to Theory 

Unlike for musicians, athletes and nearly every other profession (it's hard to believe this), knowledge, training, practice, etc., make almost no difference in investment results.

Outperformance is nearly always due to chance. If you put 10,000 mutual fund managers in a room and asked them to flip coins, a small number would flip heads 10 times in a row. The industry lauds these managers as brilliant when it is nearly always luck.

The financial industry spends billions each year trying to convince you that their product or service will enable you to beat the market. It's usually a big lie. For proof, consider the fact that the average unmanaged index fund beats the average highly paid professional mutual fund manager. The relatively few managers who outperform their benchmark index during one period usually underperforms in subsequent periods. It's called "Regression to the Mean."

The best way to beat the average investor, professional or otherwise, is to develop an asset allocation plan suitable for your goals, time frame, risk tolerance and personal financial situation.  

For example, only 10 out of 145 major pension funds from 1987-1996 outperformed a portfolio consisting of a simple mix of 60% invested in an index fund tracking the S&P 500 and 40% in an index fund following the Lehman Brothers Total Bond Index. 

It is in the interest of Wall Street brokerage firms and many financial advisors to make you think that investing is difficult.

When I started investing, most individual investors bought a few high-commission individual stocks and bonds. If we owned a dozen stocks we thought we were diversified.

Today, we can own thousands of stocks and bonds in total market index mutual funds and exchange-traded funds for less than 0.25% a year. A portfolio containing three total market funds (domestic stocks, international stocks and domestic bonds) is my favorite portfolio for most investors.

Avoid mistakes, keep costs low (including taxes), diversify and hold for the long term. Use index or exchange-traded funds whenever possible.  

Taylor Larimore is co-author of "The Bogleheads Guide To Investing" and a moderator as well as frequent contributor at the Diehards.org site. He's also a former Internal Revenue Service officer and retired chief of the Federal Small Business Administration's finance division in south Florida.

The views expressed by Taylor Larimore are for informational purposes only and should not be construed as a recommendation for any security.