Friday, December 31, 2010

Review: The Investment Answer (Goldie and Murray)

Title: The Investment Answer: Learn to Manage your Money and Protect your Financial Future
Author: Daniel C. Goldie and Gordon S. Murray
Genre: Non-fiction
Pages: 81
Rating: 4.5 out of 5
FTC Disclosure: I received this book as a gift
Summary (from the book's prologue): Wall Street brokers and active money managers use your relative lack of investment expertise to their benefit... not yours. The financial press uses your inclination to be afraid during falling markets and confident during rising markets, to it benefit... not yours. The record shows that our elected representatives, once-trusted ratings agencies, and government regulators have placed their own interests first... not yours. None of these parties has demonstrated an understanding of what you are about to read in this book. It's time for you to put yourself first and take charge of your investment future. It will be much simpler than you think.

Review: As I said in my Book Beginnings earlier today economics and investing just aren't my thing. I want it to just happen and to be successful enough that I am comfortable in retirement (which, by the way, is still far, far away). As soon as I was out of graduate school and had my first teaching job my dad told me to put money away each month automatically. He said, "even if it's just $50 a month do it now". So I did. Thank you dad! I now put much more than that into a 403(b) each month and I don't miss the money because it is taken out automatically and has been for 16 years. However, I just pick a fund and put it all there. I don't pay anyone to do anything with it for me, I don't move it around, and honestly, I don't even look at the statements all that closely when they come to me.

That said, I always feel like I should be paying more attention to my investments. After all, it's my future, my nest egg, my retirement. Here's what the authors of The Investment Answer say we need to do: make five informed decisions:

  1. The Do-It-Yourself Decision--this one means should you invest on your own or get help from a professional. In this chapter they explain the advantages and disadvantages of going on your own versus having someone else do the investing for you. They also explain the difference between a Retail Broker and an Independent Advisor 
  2. The Asset Allocation Decision--basically, this one boils down to how much risk are you willing to take and how much return do you want on your investment
  3. The Diversification Decision--The reality is that not all stocks will behave in a similar manner (some go up while others go down). Effective diversification means picking stocks in areas that are not connected. For example, don't diversify by picking a variety of tech stocks.
  4. The Active versus Passive Decision--Active managers work daily to "beat the market" while passive managers seek to do well through diversification. Active managers also tend to cost more to the investor in fees.
  5. The Rebalancing Decision--Keeping an eye on your portfolio to ensure selling high and buying low, which it turns out is the opposite of our instinct. Go figure.

The authors did a good job of making it fairly simple to understand. For the most part they used plain English and not too much "financial speak", which for someone like me is good because my brain starts to wander if it gets too technical. Actually, after reading this I opened up my accounts and took a look at where my money is and now I feel even better about how I am doing it even though I chose the easy way out and have invested in a fund that is based on my year of retirement (actually, I've chosen one that is 10 years later than my retirement year to have a little more risk).

If you want a clear explanation of how investing works and only want to dedicate an hour or so to learning, this is definitely the right book!

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