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323 of 346 people found the following review helpful:
2.0 out of 5 stars
Don't waste your money on this book - buy Bogle's!!, October 3, 2007
I was really looking forward to this book, as I have read Edelman's previous books and enjoyed them. This book is not a comprehensive how-to guide concerning personal finance, but rather, it is a book written to justify a sea change in Edelman's investment philosophy. The main theme of the book is simple: Mutual fund companies are ripping you off with hidden fees, high expenses and shady dealings. To anyone with a pulse, this should not come as a surprise. John Bogle pointed this fact out 15 years ago, and he has been shouting it from the mountain tops without pausing to take a breath ever since. Anyway, Edelman has apparently FINALLY, after all these years, realized what was going on right in front of his face the entire time. I don't know about you, but a smart guy should have understood this situation within five minutes of opening a financial practice! It does make one question his credibility. I hope this doesn't sound like I'm talking down to him, because I think he really is a very intelligent man who wants to help his clients. I just think he's too caught up in his own version of the world.
The way I see it, Edelman has been attacking index funds viciously for decades. He has used perjoratives such as "I hate index funds" from the beginning of his career. Now, he is an indexer in disguise. He refuses to outright endorse the indexing concept, but even a glance at this book will prove he believes in buying almost all the stocks in a given sector and holding them long term without virtually making any changes to the mix. Now, where I'm from, THAT IS INDEXING. I don't care how you dress it up, the guy has recognized the folly of active management. What's more, investigate DFA, the fund company he now endorses. DFA's own marketing materials preach the virtues of their investment approach - indexing!! (Note: They do create their own indexes. But they are remarkably similar to the popular indexes used by Vanguard, et. al.) Also, DFA mandates a fee paid to a planner for almost all DFA investors coupled with higher expense ratios than Vanguard funds. Their stated improvements on the commercial indexes are nullified by these extra costs. Remember, costs come from your bottom line no matter what any financial services firm may tell you!
And what are ETFs, something Edelman is now very enthusiastic about? They are indexed investments sold as securities on the exchanges! I believe Edelman is secretly a passionate indexer, however, he can't bring himself to say, "Folks, I messed up big time. You really can't beat the indexes. As a matter of fact it is mathematically impossible to do so."
One last thing that irritates me about this book. Edelman writes that fees are immaterial if the results are rewarding. How can he say this? When indexing, everything else is equal except for the costs! The more fees you pay, the poorer your indexed investments perform. The reality is Edelman is still a fee-based planner. He MUST MUST MUST justify these fees. They have made him a multimillionaire, and he can't live without them. This small part of his book makes me wonder about his objectivity.
The bottom line is this: save your money and buy John Bogle's lastest book, "The Little Book of Common Sense Investing". Bogle has been consistent and right on target since publishing his very first book. Plus, Bogle will prove to you that Edelman's advice is flawed. Bogle's writing is elegantly simple, and his solutions are fundamentally sound. When comparing the two books, Edelman looks like the Bogle wannabe who still hasn't mastered his guru's teachings. All in good time, Mr. Edelman, all in good time.
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49 of 51 people found the following review helpful:
3.0 out of 5 stars
Mixed bag, October 14, 2007
This book makes some good points:
Pay off credit card debt and establish cash reserves before investing
Save to the max that you can afford
Invest for the long term - you need to be in the market all the time
Diversify your assets
Rebalance periodically
Risk is as important as return
Tailor your portfolio for your situation
Don't invest in "hot" tips
Move your 401(k) to an IRA when leaving your job - don't cash out
Life insurance is not an investment
Variable annuities can be good for some people (very few situations)
Don't let taxes dictate your investment moves
Be realistic about how much you will need in retirement
Assume modest retruns when calculating how you might have in the future
However, there are also some bad ideas:
Sell ALL your retail mutual funds and buy EFTs and/or institutional funds. EFTs have a place, but if you are investing small amounts of money often, commissions will eat you alive. Also, the always updated pricing may encourage rapid trading. The institutional funds he refers to are not readily available unless you use an advisor.
Place ALL your 401(k) money in stock mutual funds. Maybe good advice for some, but certainly not all people, especially those near retirement, and those who might panic when the stock market crashes.
Never let expenses determine your investment strategy. Of course, every investment has fees, but indexing has the lowest fees, and you can diversify using indexes on the cheap.
Edelman provides 43 poortfolios in this book. To figure out the right one for you, you have page through the book, and to find the starting point, you have to go to chapter 7, page 193. Confusing. Also, some of the 43 portfolios are very similar, with only 1 or 2 percentage points difference in one or two categories. I think he could have done with fewer portfolios.
Edelman blasts mutual funds, providing 25 problems with them. He also provides a 41 page mutual fund scandal timeline. This overkill, with day-by-day facts. He could have made his point in far fewer pages. As I said above, his alternatives are no holy grail, particularly for investors just starting out.
There are also many references to his other books, should you want learn more about certain topics.
In many regards, a decent book, but the advice not usable by everyone.
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23 of 23 people found the following review helpful:
3.0 out of 5 stars
Some Good Information, but Mostly Sales Material, November 30, 2007
Edelman begins by telling us that the retail mutual fund industry is flush with liars, crooks, and charlatans - daily activities include deceit, hidden costs, undisclosed risks, deceptive trade practices and conflicts of interest. Since 9/03 the industry has paid over $5 billion in fines and more than 80 executives have been barred from the industry or thrown in jail.
How does one get rich? Edelman says "Start saving!" If you buy a pack of cigarettes and a latte every day, you'll enter retirement with $2.8 million less than otherwise. To get all the profits you must be invested all the time. A study found that the S&P 500 from '97-'06 went up 8.4%/year, 2.2% if you missed the ten best days, 0% if you missed the 15 best. Buy and hold strategy pays less than half the taxes of short-timers and less transaction costs as well.
Another example of the value of constancy. A review of the top 25% of all stock funds for ten years ending 12/31/06 found 90% were below the average for at least three consecutive years, and more than half for five. A Business Week sponsored study compared $1,000 in the S&P stock index 1/1/26 to 12/31/06 yielded $30 trillion, vs. in and out to t-bills in the months after the market rose/fell ($3 million). Best results came from being diversified into all 16 major markets, especially with periodic re-balancing.
Other reported findings include small stocks, value stocks, poorly run companies, and bonds with shorter maturities produced better results. It was also interesting to read that the overwhelming portion of portfolio volatility is determined by how one allocates assets among various asset classes and market sectors - not through market timing or stock selection. Edelman also cites a study showing that diversification not only reduces risk, up to a point, but also improves returns. On the other hand, tests of some stock-selection strategies have not worked well prospectively, and there are obvious spurious correlations with eg. hemlines and the number of horror movies.
Half of all retail mutual fund managers have been on the job only three years; new managers replace an average 95% of fund investments. The average holding period for mutual funds now is less than a year, creating high short-term taxes; worse yet, 15% of funds engage in "window dressing" (buying high performers after the fact to hopefully cover-up their less stellar performance).
"Survivorship bias" is the closing or merging of lagging funds to create an overstated picture of performance. Almost half of mutual fund fees are not disclosed in the prospectus - eg. trading expenses. The average total charges now are about 3X those of 1945 funds. No discounts are given for larger investors. Late trading and personal trading by portfolio managers are additional problems. Brokers are "bribed" through sales incentives - thus, don't rely on their recommendations.
Edelman then tells us that institutional funds (eg. college endowments, state retirement funds) avoid the game-playing of retails funds. At that point the book became rather unintelligible and uninteresting as it degenerated into a total sales pitch for his money management services.
My bottom line: I need to read much more different sources of information on this topic before drawing major conclusions. If all those high-priced geniuses got it wrong on the mortgage debacle, I certainly need to learn a lot more.
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