|These books cover the
ideas presented in my 9-step investment guide in far greater depth:
Charles Schwab's Guide to Financial
I think, does everything right in this book,
blazing a trail to financial independence through
investment in diversified stock mutual funds,
backing his argument with clearly presented data,
explaining the choices among investments (and
their tax implications), and putting it together
to make an individualized plan fitting your age,
family situation, and risk tolerance. If you're
new to investing or want one book that explains
it all, this is the book to get.
where I disagree:
Schwab implies expense ratios as high as 1.7% are acceptable for
any fund. Index funds operate at fee ratios far
below 1.7%most charge less than 0.7%a
fact this book neglects to mention.
In keeping with the spirit
of thrift, I point out that the just-as-good 1997
edition of this classic is available on Amazon for less than $1, plus a nominal shipping cost.
Stocks for the Long Run
The engagingly written yet
academically solid research basis behind the
argument that stocks outperform all other asset
classes over the long term.
where I disagree: At
least in the 1998 edition, Siegel occasionally
strays from his winning strategy of broad
index-based stock fund diversification to air out
now-discredited theories like buying the
"Dogs of the Dow," selling when an
index drops below its 200-day moving average, or
holding small-cap stocks in Januarynone of
these techniques have consistently outperformed
simply buying and holding a broad-based stock
index fund, as the next book thoroughly shows.
||Burton G. Malkiel,
A Random Walk Down Wall Street
Now in its 2007 edition, the
investment book by the towering American
economist and Princeton academic who famously
theorized in 1973 that Wall Street's finest
analysts could do no better at selecting stocks
than "a blindfolded monkey throwing darts at
a newspaper." Entertaining and convincing,
it summarizes a solid body of research showing
the market to be as unpredictable as a drunk guy
staggering in a field, and the number of actively
managed funds outperforming their indices to be
no higher than that predicted by the laws of
probability. Presenting data showing the
interaction of randomness with speculative
bubbles (Dutch tulip craze, South Seas land
speculation, the Roaring Twenties, the Dot-Com
Bomb), he wisely counsels investment in
diversified stock index funds, leavened by with
scant amounts of bonds and individual stocks.
where I disagree: At least in the
2003 edition of this book, Malkiel recommends putting up to 15%
of your investment in real estate investment trusts (REITs).
This is a bad idea, because real estate isn't a
diverse investment, it's a sector. If you're a homeowner, you're
already invested in real estate, and REIT investing would only further concentrate your
assets in a market sector that can bubble as
euphorically and collapse as catastrophically as
any other market sector. As history has shown all too clearly, during any real estate slowdown,
losses in your REITs would tend to coincide with
and magnify the pain of seeing your home value
stagnate or decline.
The Automatic Millionaire
A simple, workable idea for building
wealth: automate your investments, with equally
good advice on real estate.
where I disagree: Bach
favors portfolios too heavy in bonds, which underperform over the long term. Like Schwab and Siegel, I believe the average
investor would be better off in diversified stock
funds, and only after age 45 should begin
shifting wealth gradually into bonds, at the rate of 2% of the portfolio a year, so
you'd be 10% in bonds at age
50, 50% at 70, and 90% in bonds at 90.
Readers interested in learning
still more about investment should consult the highly
regarded Investopedia "Ten Books Every Investor
Should Read" list here.