21 of 24 people found the following review helpful:
3.0 out of 5 stars
Entertaining Guide on Life Goals and Selecting Investments, May 15, 2002
This is Ric Edelman's fourth HarperBusiness book on money and finance. Edelman's 400-page tome is divided into three parts:
I. Part I covers the pursuit of happiness and how to achieve your goals (122 pages)
II. Part II focuses on selecting the most appropriate investment vehicles (102 pages)
III. Part III reviews how to select the best mutual funds for your needs (123 pages)
Overall, the book is an enjoyable read and fully researched, although Part I could have been a book by itself. The layout is pleasing to the eye - numerous charts, cartoons, tables, lists, highlighted text, examples and anecdotes. Edelman supports his material with 219 footnotes (most are personal comments that should in the text rather than placed as footnotes on the bottom of the page) and 51 sourcing footnotes in the appendix.
In Part I, Edelman helps you create a list of goals by providing worksheets. Also provided is a list of questions, and activities to choose from that the reader is asked to fill in and select from, respectively, ranging from actions you'd like to do in your life to accomplishments to places and things you'd like to experience.
Edleman then covers how to achieve your goals by asking key questions. He provides insight on how to build a plan to achieve your goals and how much money is needed. He also covers the importance of not forgetting that long-term care insurance is critical.
In Part II, Edelman covers investments. He is a big fan of using the stock market to increase wealth because of the long-term positive returns, even considering the intervening bear markets. He believes that individuals that invest in cash equivalents (e.g., CDs, T-bills, and money market accounts) are harming themselves because of the ravages of inflation and the low total return compared to stocks.
Edleman provides an interesting table showing an investor's return from 1926 - 2000 based on the percentage of assets that are placed in stocks. For example, investing 0% of one's assets in the market resulted in an annual return of 5.4% (in bonds, for example). At 100% invested in stocks the annual return was 13.1%, and at 50% invested the annual return was 9.4%. Obviously, the higher percentage invested, the higher the annual return. Edelman further points out that over the last 100 years the market has gone up 70% of the time.
Edelman doesn't show 5-year periods or ten-year periods, so you cannot see the variance in different timeframes and the impact of bear markets. Over 74 years the market has gone up, but there have been 14 bear markets and some very severe ones including the most recent from the first quarter of 2000 to the current time. So, Edelman's table is not a true representation of the average investor's return. Interestingly, Edelman dismisses the current bear market as a normal bear market occurrence. This is hardly the case for many investors whose high-tech portfolios have been decimated between 50% - 90%. He does mention, later in the book, that a diversified portfolio would have softened the blow of the 2000 - 2001 bear market for many investors.
Edelman includes a chapter on why an investor should not invest in sector funds - you have to pick the right sector at the right time. He provides the performance of 13 sectors from 1984 to 2000 showing the variation in performance and the difficulty in picking the right sector.
There is another short chapter on the four ways you can buy your investments. He covers mutual funds, annuities, hiring an investment manager, and doing it yourself.
In Part III, Edelman spends 31 pages explaining Morningstar's star rating system, category rating, and style boxes. He believes that most investors pick their funds with the highest star ratings, but are disappointed when future performance is less than expected.
Edelman demonstrates that high star ratings do perform well in the future and shouldn't be used for predicting future returns. His long-winded explanation of Morningstar is a bit of overkill. Also, in early May the firm announced a change to their rating system to be implemented in the near future. So the value of this chapter may be minimal.
Edelman then spends 26 pages on how an investor should select mutual funds by understanding the principal of the standard deviation of different funds. He also provides a chart showing how long it takes to recover from different percentage losses (e.g., a fund losing 80% of its value will take 14 years to break-even assuming a 12% annual return). Edelman favors actively managed funds to index funds because, he says, that the latter haven't outperformed them.
Additional chapters in Part III cover how many funds do you need to be diversified, and active vs. passive management.
Edelman has strong opinions on how to invest. While I always don't agree with them, at least he presents his case with facts, statistics, and examples. Overall this book should provide the reader with useful insights into planning life's goals, enjoying them, and which investments to avoid in order to have the financial assets needed to live a good life.
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14 of 15 people found the following review helpful:
5.0 out of 5 stars
Awesome and Inspiring, October 30, 2003
What a pleasure it is to read someone like Edelman who is not only uniquely qualified to write on the subject of money but also writes in such a breezely easy to read style.
I just picked up this book after reading "What You Need to Do Now" and "Ordinary People, Extraordinary Wealth" by Edelman. The previous books helped me more than anything to overcome the bad advice I got from reading other financial books.
Besides Ric's books, I also recommend "The Road to Wealth" and "The Laws of Money" by Suze Orman. I believe that Ric and Suze are the two best financial authors out there right now. Both are CFP's and Ric's firm is ranked among the top 5 firms in the country by Bloomberg. Obviously Edelman would not have this many clients if he didn't know what he was doing now would he?
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