Are you looking for a straightforward book to help you (or someone you know) get started investing? If so, then I have a great suggestion for you…
This is actually one of seven books in the “100 pages” series, so we’re not talking about a one-hit wonder here. As for what’s in the book…
Like me, Mike is a strong proponent of index-based, passive investing. As such, he focuses on building a winning portfolio using low cost index funds. He also talks about avoiding the many behavioral traps associated with investing.
What follows is a quick synopsis of the book along with my own one line (or so) summary of what’s in each of the 16 chapters.
I should also note that, as concise as this book already is, each chapter closes with an ultra-concise “Simple Summary” that gives you the key points in a bulleted list.
Part One: The Basics
This section is broken into four “nuts & bolts” chapters:
1. The Building Blocks – What are stocks, bonds, and mutual funds?
2. Types of Accounts – Taxable investing accounts, traditional and Roth IRAs, 401(k) plans, rollovers, etc.
3. Risk and Return – With risk comes reward, but it’s called risk for a reason.
4. How to Know How Much You’ll Need – Estimating your future spending needs, adjusting for inflation, etc.
This will be old news for many of you, but you have to start somewhere…
Mike does an excellent job of building a solid foundation in this section without droning on and on. The entire section spans just 26 pages, and it’s packed with useful info that will get you started on the right foot.
Part Two: Constructing a Portfolio
This section is broken into six chapters:
5. Don’t Bother Picking Stocks – You don’t need to (and probably shouldn’t) pick stocks if you want to succeed as an investor.
6. Index Funds Win – Why index funds are better than actively-managed funds.
7. Asset Allocation and Risk Tolerance – Determining your proper stock/bond and domestic/international mix, how to rebalance.
8. Putting the Pieces Together – How to choose between funds (and/or fund families) when constructing your portfolio.
9. Exchange-Traded Funds (ETFs) – ETFs are similar to mutual funds, but traded on the open market like stocks.
10. Target Retirement Funds – Investing for the truly lazy.
All you ever needed to know about portfolio construction in just 34 concise pages. Nice. This is where the rubber hits the road.
Part Three: Stay out of Trouble
This (the final) section is likewise broken into six chapters:
11. Think Long-Term – Investing is a long-term game; don’t undermine yourself by obsessing over short-term fluctuations.
12. How to Find a Good Financial Advisor – Yes, there is such a thing as a good financial advisor; know thyself and get one if you need one.
13. Automate Your Investing – Put things on auto-pilot to minimize the impact of your emotions (and laziness).
14. Beware the Hot Fund – Chasing hot funds is just as dangerous as chasing hot stocks so don’t do it; set it and forget it.
15. Turn Off the Television – Do yourself a huge favor and turn off the TV, which will otherwise flood you with suspect information from so-called “experts.”
16. Steer Clear of Stock-Picking Newsletters – The same goes for newsletter “experts.” Ignore them. Your future self will thank you.
In other words, this section (31 pages total) focuses on how to keep yourself from getting in the way of your own success. Given the simplicity of the strategies being championed, this is probably the most important section of the book.
Conclusion: Keep it Simple
Mike closes the book with a call for simplicity. As he rightly points out, investing is a rather simple endeavor. Choose an appropriate asset allocation, invest regularly, rebalance when necessary, and stick to the plan. That’s it.
The hardest part in all of this is tuning out the noise and resisting the temptation to react to short-term market perturbations.
Who’s it for?
So… Who is this book for? If you’re a full-fledged Boglehead, then you probably don’t need to read this book. But if you’re just getting started with investing and are looking for a quick read to point you in the right direction, then you’d be hard-pressed to find a better entry point than “Investing Made Simple.”
This isn’t to say that Mike covers all the finer points of investing. He doesn’t. That’s not the point of this book. This book covers the first 90% of what you’ll need to know to succeed as a long-term investor. The other 10% is (imho) mostly fine-tuning.
Oh, and if you have an e-reader, the Kindle version costs about five bucks.