Smart Investing for the Average Joe
The Smartest Investment Book You’ll Ever Read, 1st ed, 2006, Daniel R. Solin, Penguin Group (USA), New York, New York
“Fire your broker!” So a small minority of financial experts have been telling us for some time now. In his modestly entitled book, The Smartest Investment Book You’ll Ever Read, Daniel R. Solin tells us why we should fire our broker and what we should do after that.
This is a short book that could have been made much shorter. The first half of the book repeats itself over and over until you’re tired of it. Nonetheless, it has a significant message and is well worth the irritation that the overemphasized points cause. On the subject of individual investing, this is anything but an evenhanded treatment. Solin is quite unkind to financial advisors and brokers, implying that they are nothing more than shysters and con men angling to separate you from your hard earned dollars. Still, he makes a strong argument that most financial advisors are not working in your best interest, but in their own. He also presents a convincing case against anyone being able to consistently pick undervalued stocks or timing the markets for greater returns.
In the first three-fourths of this book, Solin describes what he calls “Smart Investing,” which is simply investing on you own in a low-cost, no-load index mutual fund, versus “Hyperactive Investing,” which he says is allowing your broker or financial advisor to continually buy and sell “hot” stocks, each time earning a commission on the transaction. He shows that frequent trading is expensive and reduces your return. He presents an abundance of data to back up his claim that low-cost index mutual funds beat higher-cost actively managed mutual funds 95 percent of the time. Solin also points out that the average cost of a “hyperactively” managed mutual fund is approximately 2.5 percent, while the average cost of an index mutual fund is less than 2.0 percent and can be as low as 0.03 percent. He believes that, instead of trying to pick stocks or time the market, investors are better off if they concentrate on asset allocation and risk management.
As previously mentioned, the message in the first three-fourths of this book repeats itself. Solin acknowledges as much in chapter 18 when he says, “Have I convinced you yet? If so, you can skip right to chapter 36, which describes the four-step process for achieving vastly superior market returns.” The intervening chapters do, however, contain some nice-to-know information on topics like asset allocation, various types of equities, house funds, hedge funds, and buying on margin.
Solin also makes his low opinion of the financial media known, saying, “you should ignore everything you read in the magazines and newspapers, everything you see and hear on the television and everything you pay to have pumped into your Palm Pilot or BlackBerry that indicates that they can tell you where the markets are headed or whether or not a particular stock or fund should be bought of sold.”
Chapters 36 through 40 are the real meat and potatoes of this book. In them, Solin lays out exactly how you should invest your money and with whom. He describes how asset allocation should be determined and provides a quiz, both in the book and on his website, to help you calculate your own. The major low-cost, no-load index mutual funds are listed and the features of each are described. Next, he discusses portfolio rebalancing and presents the reasons why you should rebalance your portfolio twice a year.
This book could have been shortened quite a bit without any loss of content. Its message is not new. Financial experts who do not have an interest in getting individual investors to trade actively so as to make a commission have been telling us to invest in index mutual funds for many years. However, Solin lays the message out in a clear, unambiguous way, and provides simple directions on how to invest as he believes most individual investors should. In his own words, this book really is, “The simple, stress-free way to reach your investment goals.”