I recently completed the book The Smartest Investment Book You’ll Ever Read: The Proven Way to Beat the “Pros” and Take Control of Your Financial Future by Daniel R. Solin. This book was recommended by Scott Alan Turner. Many of the concepts in Scott’s book, 99 Minute Millionaire, were similar to the concepts discussed in Solin’s book.
Read my review of 99 Minute Millionaire here and you can buy the book on Amazon here: 99 Minute Millionaire: The Simplest and Easiest Book Ever on Getting Started Investing and Becoming Rock Star Rich.
In my review of Solin’s book, I will summarize the four parts of the book and I will provide my thoughts throughout and a quick summary at the end.
The book is broken into four parts with an overall aim targeted at making investing simple. I really enjoy the quotes that Solin has in his book from various people.
Part one: Become a Smart Investor
Part one of the book gets into the details for WHY you should become a Smart Investor. Smart investing means implementing an investment strategy that attempts not to beat the market, but to keep pace with the market. With this strategy, you do not have to pay anyone. Just utilize the research that others have completed, do some research of your own, and keep your strategy simple.
In contrast, hyperactive investing is where you try and beat the market. Few people have actually been able to beat the market and the list of people that consistently beat the market is EXTREMELY small.
This concept of a Smart Investor was foreign to me when I graduated college. I met a guy from Northwestern Mutual and I got sucked into a crappy savings account and a permanent life insurance policy. I didn’t know any better and I wasn’t focused on my finances because after college I was focused on finding an engineering job so that I could start making my student loan payments (excuses, I know).
This leads well into the next part of Solin’s book about brokers and advisors.
Part two: how brokers/advisors keep you from being a Smart Investor
Part two of Solin’s book goes into detail on hyperactive investing. Most brokers or advisors he considers hyperactive investors because they are trying to beat the market. In addition, they are selling to people like you and me the reason why they think they can beat the market. At the end of the day, a majority of these brokers/advisors do NOT beat the market. They do not even match the market.
Why do you think companies like Northwestern Mutual are well-known and have many sales people working for them? The answer is simple: they charge high fees for their services. Charging these high fees enables them to spend a great deal of money on marketing campaigns to reach more people, like you and I.
Solin had a discussion with a man who left a major brokerage firm. This man informed Solin that during a training at the brokerage firm the trainees were told to tell half of their client list to buy a stock. Then, they told the remaining half of their client list to sell the same stock!! After a few weeks, they were guaranteed to look like “smart investors” to half of their clientele.
Part three: Smart Investors know better
In part three, Solin establishes credibility before going into his strategy for becoming a Smart Investor. He mentions the names of well-known Pension Plans, Education Institutions, Fund Managers, Nobel Laureates (Economics) and Professors of Finance and Economics that invest in low-cost index funds.
Next, Solin reiterates why some people and brokers/advisors continue to pick individual stocks. Simple. The people giving out advice on “the stock of the day” or “the next hot stock” have no financial incentive to advise their clients to become Smart Investors. If they did, they wouldn’t have any clients!!
The brokers/ advisors giving out advice on “the stock of the day” or “the next hot stock” have no financial incentive to advise their clients to become Smart Investors. If they did, they wouldn’t have any clients!!
The last message in part three discusses the need for an advisor if you have a significant amount of investable assets – over $1 million. At that point, the advisor can help you with tax-efficiency strategies, asset allocation, etc. However, Solin again cautions that you should investigate the fees you will pay for an advisor’s services.
Part four: the four-step process
The entire book leads up to Solin’s four-step process for investing. In part one, Solin introduced the idea of the Smart Investor. Next, Solin examined how advisors and brokers make A LOT of money off of people. These advisors and brokers sell their products and services and guarantee returns that will beat the market. Almost all of these advisors do NOT beat the market. Then in part three, Solin reviews some research he did to show the types of companies and institutions that invest in index funds.
Index funds are the crux of Solin’s four-step process.
- Determine your asset allocation.
- Open an account with a company like Vanguard or Fidelity because their fees are low!
- Invest in low-cost stock and bond index funds (e.g. VBMFX for bonds and VTSAX for stocks).
- Rebalance your portfolio twice per year.
For asset allocation, Solin recommends thinking about the following factors:
- Do you need income from your portfolio
- Significant or changing life events
For steps two and three in Solin’s four-step process, here are the allocations based on risk to invest in for both Vanguard and Fidelity.
Finally, rebalancing your portfolio twice each year enables you to make the appropriate changes. You want to look at how the market is doing and your risk tolerance based on anything that changed in your life. There are also target date funds that are more “set it and forget it” plans and these plans are OK if you are limited on time. However, the fees are generally a little higher for these target date funds. You should always check the fees for the funds you are investing in.
That concludes my review for The Smartest Investment Book You’ll Ever Read by Daniel R. Solin. His ideas closely align with Scott Alan Turner’s, and I am a big fan of Scott. From a high level, the idea to invest in low-cost index funds is an idea I think everyone should consider. The reason is due to their low fees.
At least from my perspective, you haven’t heard the name Vanguard often because they aren’t making as much money off of people compared to some of the other firms that are out there. Within the last few years, their name has become more prevalent because people are started to catch on to the philosophy of investing in low-cost index funds and Vanguard has some of the best funds with the lowest fees.
In the next week or two, I will post a review for the book The Simple Path to Wealth: Your road map to financial independence and a rich, free life by JL Collins.