Book review: ‘The Smartest Investment Book You’ll Ever Read’
There are many personal finance books out there, useful to people in all stages of personal finance. I have a lot to learn before reaching financial independence, and the editorial elves thought it would be useful if I shared some of what I learn with you.
My recent reviews include “More Money, Please: The Financial Secrets You Never Learned in School” and “The Money Book for the Young Fabulous and Broke.” This week, I'm reviewing “The Smartest Investment Book You'll Ever Read” by Daniel R. Solin.
Daniel Solin is an attorney and a registered investment adviser. He has written another book, “Does Your Broker Owe You Money?” and his goal is to help prevent individual investors from being taken advantage of by financial professionals who do not have their clients' best interests in mind. He has appeared on numerous radio and television programs. More information about him and his book is available on his website.
Philosophy Behind the Book
“The Smartest Investment Book You'll Ever Read” is aimed at beginning investors, anyone who actively trades stocks or who invests in actively managed funds, and anyone whose retirement funds are managed by an investment professional. This is a pretty wide audience. The book is very short (150 pages or so, plus some appendixes) and the chapters are short as well — about three pages each, on average.
As a result of the short chapter lengths, it is possible to read this book at your own pace. You don't need to worry that you will stop in the middle of a complex idea/chapter and get confused when you return to the book. In addition, the main idea behind the book is very simple: no one can time the market.
People who believe they can are deluded, and people who claim they can for professional gain are, well, basically crooks. And in many ways, the system is unfortunately not set up to protect you against them. In other words, many investment professionals are crooks who are acting legally. Fortunately, as Solin points out, it is fairly easy to protect yourself. That's because one of the secrets to investing is that it doesn't need to be nearly as complicated as you may think it does.
What I Didn't Like
It's a good thing the chapters are short, because boy are they repetitive! I definitely read this book in short bursts. The book is divided into four sections:
Become a smart investor: change your investment life forever
Your broker or adviser is keeping you from being a smart investor
Smart investors know better
The real way smart investors beat 95 percent of the “pros”
He starts each book with a quote from a reputable/well-known investment or financial professional to support his point that no one can time the market. He quotes Nobel laureates in Economics such as William F. Sharpe and Merton Miller. He quotes investment professionals including Peter Lynch and Warren Buffett. The chapter following each quote gives a specific and brief example to support the main idea of the book. No one can time the market.
I am sure Solin assumes that the people reading his book need quite a bit of convincing that passively managed index funds are the way to go. Part of this is understandable: people don't like to change. Even if they realize after chapter 7 (out of 44) that actively managed funds are a ripoff, they may not take action.
By repeating the same point over and over, he is trying to help people understand just how big of a deal that this is. However, my retirement account is with one of his preferred brokers and in one of the account types he recommends, I didn't need to be beaten over the head with his message. I guess I'm just not his target audience.
What I Loved
Despite the fact that this book came out in 2006, the advice contained within it is still good. The fees and commissions associated with actively managed funds can undo even the most impressive gains made by the fund, even if they do manage to consistently outperform the market. And most actively managed funds underperform compared to the market, at least over time.
In other words, because the whole point of the book is that you should ignore “hot stock tips” and other financial news of the day or week, his investment style is going to be good advice for years to come. He emphasizes basic concepts: determine your risk tolerance, choose an investment allocation that complements your risk tolerance, and rebalance once or twice a year.
If once or twice a year is too much work for you, invest in a target date fund that rebalances itself periodically. Simple as that! He does deal with other issues, such as how to fire your investment broker once you've seen the light. He also covers what to do if your employer's retirement plan only offers actively managed funds (in short: complain to HR and ask for passively managed index funds to be added to the plan).
He doesn't say this, but his advice boils down to nobody cares about your money more than you. And it's true!
Who Should Read “The Smartest Investment Book You'll Ever Read”
If you have recently or will soon be entering the land of full-time employment, 401(k)s and 403(b)s, then this is probably a good book for you to pick up. You may or may not need to read the entire thing to be convinced that index funds are the best bet. However, Solin himself says several times throughout the book to go ahead and skip to chapter 36 as soon as you've internalized that message. That's where you'll find the step-by-step instructions for picking the best funds for you.
Or maybe you have been picking your own stocks or taking the advice of a commission-based investment broker. If that's the case, then some of the anecdotes and examples in the first 35 chapters may be eye-opening for you. Solin's bibliography will help you find the original sources if you don't believe what you're reading.
Or maybe your intention is to invest in passively managed index funds but you want to know what questions to ask to determine the fund and/or asset allocation that is right for you. You might find this book useful, and as a bonus, you could skip all the boring repetitive middle chapters!
Once you've internalized the main idea of the book and chosen your funds, it's unlikely that you'd need to refer back to this book again. Worthy of a library check-out, but perhaps not a need-to-own.
What's your investment strategy? How often do you check or change your portfolio?
Please note: I bought this book on my own a couple of years ago, fair and square. I am not affiliated in any way with Daniel R. Solin or his publisher, and my opinions are entirely my own.