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McNabb: Always Apply the Five-Minute Rule

If you can't understand an investment product in five minutes, walk away, says Vanguard chairman and CEO Bill McNabb.

Dan Culloton: I'm told that in your speech, you're going to talk about something called the five-minute rule, if I have got that correct. What is the five-minute rule?

Bill McNabb: Yeah. So, broadly I'm going to talk about three building blocks of trust and one of them is simplicity. And five-minute rule is something which I shamelessly borrowed from a report written by Ennis, Knupp, one of your great Chicago institutional consultants. And it's essentially if you don't understand an investment idea in five minutes, take a pass; whether you are the most sophisticated institutional investor or a retail investor trying to figure out how to save for college or retirement.