4 best books for retirement investors
Reprinted courtesy of MarketWatch.com
Published: Oct. 2, 2013
To read the original article click here
The question of the day: How much do you really need to know in order to be a successful investor?
Throughout North America, it’s the start of the school year, and my new course on personal investing is being taught for the first time at Western Washington University. Students will get almost 40 hours of classroom time, and a roughly equal amount of homework, to prepare themselves for the rest of their lives.
I am not teaching the course, but I have been involved in its inception financially, emotionally and intellectually. The class, part of Western’s College of Business and Economics, is called Personal Investing; how’s that for a catchy name?
Lots of university classes are about theory and understanding. This one has some of that, of course, but its main goal is to change the students’ lives. The university has agreed to do a six-year follow-up study of how well the class succeeds in that goal — and of course I will be keenly interested in knowing the outcome.
In consulting with the faculty about this over the past year and a half, I’ve given a lot of thought to how much an investor really needs to know in order to get off on the right foot.
How many years of college? How many hundreds or thousands of investment articles and books? How many seminars and discussions? How many online courses in trading? (When it comes to day trading, the answer is zero, zip, nada.)
Some investors think it takes years, even decades, of studying, reading, listening, watching and searching for the secret sauce. I don’t think so.
Students in this class will be exposed to a limited number of essential topics. These include the power of time and the importance of interest rates, using the time value of money in real-world situations, how various types of investments rank in terms of risk and expected return, asset allocation, controlling costs, tax laws, inflation, diversification, rebalancing, the issues associated with market timing and chasing performance and of course the role of emotions such as fear, regret, surprise and happiness.
My hope is that the students will quickly be able to apply this knowledge quickly after graduation (or in some cases even before) to their 401(k) accounts and IRAs. I want them to make savvy decisions early in their adult lives and continue to do so permanently.
If the course is successful, the 45 students should be able to skip the common blunders that so many people make in their first 10 or 20 years of investing. That should leave them with more savings and more peace of mind, along with less stress.
Assuming that you aren’t going back to college to learn how to be an investor, what does this mean to you? Is there any way you can benefit from this class?
I think the answer is yes. If you are willing to put in 20 hours, I think you can give yourself an education that will cover much of the same ground that these students will get from 80 hours of instruction and study.
So here’s your assignment: Read just four books. They are easy, but I hope you will take the time to think about what you’re reading as you go. These four books are widely available online, and there’s a good chance that you can find them free at your local library.
The four best investment books I know
“The Little Book of Common Sense Investing” by John Bogle. The author is the founder of Vanguard and the inventor of index funds for individual investors. He’s classy, intelligent and articulate. As I have written before, he is part of Wall Street, yet he’s on our side. Name any mutual fund in existence today, and you can be pretty sure that John Bogle has had an impact on how that fund and its managers operate.
This book summarizes and condenses many practical lessons that investors should put into practice. I find myself coming back to it from time to time, and you may want to do the same.
“Your Money and Your Brain,” by Jason Zweig. Zweig, a columnist for The Wall Street Journal and formerly a senior writer at Money magazine and mutual funds editor at Forbes, does an outstanding job of showing how the invisible hard wiring inside our brains dictates a lot of our behavior. Often this is a good thing, but many times this automatic behavior gets us into trouble.
At least five times I have read this fascinating book on the psychology of investing. Each time I learn more about how easily and stealthily our fear, happiness, greed, surprise and regret can hijack our thinking.
“Mutual Funds for Dummies,” by Eric Tyson, is in my opinion a must-read for any serious investor. Tyson has written a handful of best-selling personal finance books. At one time he was (and maybe still is) the only author ever to have four entries at the same time on Business Week’s list of best-selling business books.
You can regard this book as a vital manual on how to understand and use the mutual funds that are likely to make up the bulk of your retirement portfolio.
“Financial Fitness Forever,” which I wrote for publication late in 2011, focuses on five basic choices every investor makes — choices that produce success or disappointment. I remember once getting a phone call from the book’s editor, who had just finished reading the first draft of the first half of the book. “Paul, I have changed my portfolio,” he told me.
I would especially call your attention to three chapters: Where Will You Place Your Trust?, Twelve Numbers to Change Your Life and “The Perfect Investor.” I plan to use that last one as a springboard for a couple of upcoming MarketWatch columns.
If you use these four volumes as your syllabus and your textbooks, you won’t have to go back to college. That seems like a heck of a deal to me.
Richard Buck contributed to this article.
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