Financial Book Review, or You Just Can't Go Home Again
Over the last week, I read five financial books about saving and retirement. I wanted to read through them to see if my recommendations for the books still were appropriate, a decade later. In this blog I even talk about Automatic Millionaire and go through the exercises.
I'm both disappointed that I didn't write more with subsequent chapters, but glad I didn't spend more energy on the books, as a decade later, I think this book and its companion workbook are pretty awful. While it did get me interested in saving more, and to write a set of values and ballpark dollar amounts, at the age of 24, I was wildly pessimistic on how much I needed to amass. A million dollars to travel the world? I mean, I could spend a million on it, but I don't think it would be necessary to require that much to have a wonderful time traveling. Better that that expecting it to take $25,000 and stick to it, though. The other issue was not knowing how much it takes to live, daily. I guessed that I would need $2 million dollars just for myself. That would be roughly $80,000 per year, every year. I'm unsure if I actually did the annual math, since at the time I lived in a low cost of living area with my parents, and I don't recall asking them how much it costs to run the household. I finally did get my own good information after moving out, getting a husband, and moving to an area that is slightly more expensive from where I previously lived. I think the most expensive year my ex-husband and I had were $86k, though $14k went to prepaying the mortgage. The $72k left included 4 vacations, all the normal expenditures for a household and a trip to the ER for a kidney stone. While health care premiums weren't an expense since our jobs paid for those, it seems $2 million goal just for myself is a bit high.
While the book pointed me in the right directions, the stories in the book seem far fetched (the author, in his mid twenties, is giving lectures about finances, but was impressed by a married couple enough to move his retirement contribution from 1% to 3% of his income? He wasn't even doing the 10% he had recommended?) and the suggestion of financial advisors and active management are just off base. I would not give this book to anyone looking to start a savings/budgeting/retirement plan.
However, I would still give out the book I Will Teach You To Be Rich by Ramit Sethi, with one major caveat. Don't read the first 14 pages. His intro is a lot of unnecessary tough love talk that doesn't help the reader who is new to the subject. Why would you make your new reader feel bad about themselves? Most people already aren't given enough financial education. Why berate them for it, too? The rest of the book is great and actionable stuff. I would recommend the book for a person new to personal finance, especially if they are new to budgeting and banking, though Ramit does go into retirement accounts as well.
About four years ago, I read JL Collins' book The Simple Path to Wealth, which is a great book with a conversational tone about investing in the stock market. It discusses how the market fluctuates and gives advice first written for his college aged daughter at the time, to essentially put money earmarked for retirement into a low cost brokerage (like Vanguard) and buy a Total US Index fun (like VTSAX) Upon my reread, it is still an excellent book and the one I would absolutely recommend for anyone wanting to start investing for retirement.
I read two new books, A Random Walk Down Wall Street and What Wall Street Doesn't Want You to Know.
I started with A Random Walk Down Wall Street, by Burton Malkiel, which starts with a stock market history as well as the history of active managers devising ways to beat the market. The author, with a conversational tone, goes through with evidence and math, proving the various mathematical model eventually break down and yesterday's darlings of the stock market cannot keep up with the index funds today. The author goes through many models that eventually fail, continually suggesting that active managers cannot beat the market, and then the last section of the book to move from theoretic/historical to actionable, the author suggests that the investor should get a financial advisor. Really? After 400 pages of telling me why active management sucks, he outlines rules that if you must feel you need a financial advisor, make sure you pick one with a proven track record - something that he's already discussed that does not hold water. If he could have cut out the last 100 pages of the book, I would heartily recommend it for people who want to know more about the history of the stock market and stock picking and bubbles and busts throughout the last hundred years or so. However, with the inclusion of that last section, I have to only recommend it with a caveat - stop at page 400.
The book What Wall Street Doesn't Want You to Know by Larry Swedroe is much drier than A Random Walk, but covers the same amount of information, but broken up into smaller chapters. Swedroe takes the reader through mathematical models from easy to more complicated instead of going by chronology. He proves that passive management is the way to go, but does give a caveat that if you do not want to manage your portfolio yourself, he offers the last chapter to discuss questions and a checklist of things to go through to select a fee-only financial advisor where you can get advice and help keep you on track and not panic sell. While I am leery at his inclusion of this chapter, there is a subset of the population that will always want to talk to people for advice, and that is what the financial advisors are supposed to be there for. Fee-based Fiduciaries are the kind of financial advisors that people should talk to. Regardless, this is the best book, in my opinion, to give someone who wants to know more of the math that goes along with understanding why passive investing wins.