Customer Reviews

The Lies About Money

5 star:		(14)
4 star:		(7)
3 star:		(9)
2 star:		(9)
1 star:		(9)

 

 

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.

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.

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.

I've always enjoyed Ric Edelman's advice (and his show) and agree with many of his tenets mentioned in this book and some of his others. Most is sound and good advice and even though his "carry a large mortgage" is controversial, I agree that it is better to have liquidity rather than a "paid for" house. I re-read the "Truth about Money" AFTER I read the "Lies about Money" and I agree that much of the new book goes 180deg from what he used to say about retail mutual funds. He says concentrate on Exchange Traded Funds and institutional funds that aren't supposedly plagued by corruption...scattered throughout the book, he does have questions to ask you to narrow down how you should be diversifying your assets, and I enjoyed all his pie charts that gave us an idea of where we should be at our age and in our circumstances. He also lists chronologically, every mutual fund scandal with names named. This book is so much a brochure for Edelman Financial, I was moved to check them out. The information they provide says most of his clients do get about a 12% return on their money. I've done much better with my commission based planner and question the almost $9k yearly fee Edelman Financial would charge me to get around that 12% return (for example with a $500k investment). I'd be interested to hear what his current clients have to say about the book. I'd also be interested to hear what those in the retail fund industry have to say about all this.

Based on the hype via radio ads, I had high hopes for this book but, sadly, I was disappointed.

Granted, I purchased this book primarily for the asset allocation portfolios. However, the portfolio allocation information is on Edelman's web site. The book even notes that the trail to the right portfolio is covered more in depth on his web site. So if you're considering purchasing the book just for the portfolio asset allocation information, check out his web site.

The system to get you to the "right" allocation model is cheesey. A flow chart would have fit on a couple of pages. However, Edelman has the flow chart spread out over some 60 pages. Granted you won't need all of those 60 pages for your personal chart. However, it reminded me of grade school to have to flip backwards and forward through the book to find the next question.

The sales pitch for a financial advisor is there. The pitch to use a specific fund company is there. And guess what? To use the recommended fund company you need to go through his firm.

Plenty of mutual fund bashing. In fact there are 40 pages of mutual fund "scandals" enumerated. I got his point in one page. The rest is what I would consider "filler" material.

A few good points are made. Start early, stay invested, rebalance regularly.

Mark me as "very under-impressed".

I've been a Ric Edelman fan for years. His earlier book "The Truth About Money" was excellent. It was nice and basic, and explained a bunch of stuff that most everybody really needs to know about how money works. I still highly recommend that to every teenager or other person just beginning to learn about saving, investing, borrowing, etc. And so I was really looking forward to reading this latest.

This book, however, I feel can be adequately summarized as "Ok, remember before, I told you that mutual funds rock? Well, not anymore. Now exchange-traded funds (ETFs)" Not that he tells too much about them. I read the book and I'm still not sure I understand them. At least, I'm sure I need to learn more about them.

Oh, and then he has his portfolio selection guide, that shows you what diversification plan... uh... portfolio weighting and balancing... uh... whatever... that you should have, based on a few basic questions. The guide is an oversimplified bunch of stuff masquerading as high-tech advice printed on pretty paper. Based on my answer to the first question "How much do you have to invest?", I ended up steered into one of two nearly identical portfolios -- and the other questions, like my investment timeframe, risk acceptance, age, etc. only mattered in whether my 30% in bonds was broken down into mid-term munis or blah blah blah.

Sorry Ric. The Truth About Money was awesome, but I'm afraid this book itself is some of the Lies About Money. Oh, so why two stars? Well, the explanation of the problems with the mutual fund industry is pretty good, even if he does tar all the companies with the same brush.

Ric Edelman's first book ranted against index funds because (1) there are "plenty of funds that have outperformed the indexes" and (2) "index funds are tax traps waiting to happen".

As for point (1), past performance is no guarantee of future results. And when you compare results on a risk-adjusted, after-tax basis, it is very difficult to beat index funds consistently.


As for point (2), Edelman refers to built-up capital gains within index funds (and other funds with relatively low turnover). While this is a matter for some legitimate concern, the massive redemptions from index funds that Edelman predicted some years ago just haven't happened. And if you purchase index funds in a tax-advantaged account, you don't need to worry about large and unexpected capital gains tax bills in any case.

I commented on these pages way back when that Edelman's main objection to index funds was most likely that Vanguard wouldn't pay him a commission to direct his customers toward their index funds. After all, that would defeat the purpose of low-cost index investing. Now he wants us all to be indexers, or at least closet indexers.

When I want the flavor of the month, I will go to Baskin-Robbins. For steadfast, consistent investment advice, read Bogle, Jane Bryant Quinn, or just about anyone else but Ric Edelman.

I liked much of this book but do not embrace all of its recommendations. The Epilogue lists 30 "lesson's learned" which I can generally agree with. I thought the Chapter 2 on academics was well done (I didn't know CAPM was going out of favor). There are many other good chapters also.

Ric's criticisms of the mutual fund industry are interesting and I think largely on point. His criticism #20 is that mutual funds offer no discounts for larger investors -- that is not true. Vanguard has a series of "Admiral" funds that are offered with about half the expenses of the "normal" funds if your investment in that fund is $50,000 to $100,000 (depending on your length of time in the fund). (The expenses are roughly 0.1% instead of 0.2% for the index funds. Fidelity has something similar -- I am just familiar with Vanguard.)

I am not sure about the Guide to Portfolio Selection. With GPS, you go through the questions and end up with a point score and a letter score. My point score maxes out at 10 because I am highly risk tolerant. My responses to the letter score questions are that 1) I am adding to the account on a regular basis, 2) I have 12 months cash in reserve, 3) I am under 70, and 4) I do not want to receive income from my account immediately. Given those factors, if my account size is is less than $1 million my letter score is B. If my account is more than $1 million my letter score is H. Matching those on a table in the book, combination B-10 gives me portfolio 41 which has 78% in stocks, 20% in bonds, and 2% in hedge positions. Combination H-10 gives me portfolio 13 which has 54% stocks, 36% bonds, and 10% hedge positions. To me, that seems too big a portfolio difference for a one-dollar difference in account size. But, stepping back, either one would probably be OK for me at the 1$ million level. I would feel better if the GPS model were wrung out in an article in a peer-reviewed journal. (Ric does caution against over-reliance on the book models and offers a web site where you can get a more refined model.)

Things get less academic when I am called a "fool" for having index funds. If I buy one of the so-called target retirements funds (that adjust between stocks and bonds as you age) I am "lazy" and a "loser". I find this language unseemly.

As noted in other reviews, Ric promotes DFA but not that hard and he gives you alternatives such as ETFs. (I do agree with comments above that DFA is basically indexing and that conflicts with Ric's anti-indexing talk.) I get Ric's newsletter, which I think is also useful and a bargain, and he promotes his services there, but there is also a lot of good information.

Rick gives several other sources of useful information in his book. Let me add Jonathan Clements' columns in the Wall Street Journal.

He defends the fees paid to financial advisers such as him. I am fine paying for financial advice. The problem is the cost. From Ric's web site, the Edelman Managed Asset Program (EMAP) starts out taking 2% of your portfolio value for the first $150,000 each year, with smaller percentages of higher amounts. For my model $1 million portfolio, I calculate $13,500 in fees per year, or 1.35%. From the EMAP reports, it seems I might expect 8% or so return. Not bad, until I pay that fee. (I would prefer to pay an Edelman advisor by the hour for advice on my own investments if that were possible.)

Ric has a chapter on life insurance and how it is a lousy investment, and he is right. But, as someone in the life insurance industry told me, if one has no other investments, it is better than nothing, and he is right also.

You would do better with Ric and his services than life insurance, or stock picking, I think. Probably better than the typical actively-managed (high-cost) mutual fund. I suspect, though, that one can do still better with stock and bond index funds from Vanguard or Fidelity with expenses at 0.1 or 0.2% per year, and using the simpler asset allocation tools on those sites. Or, in spite of Ric's ridicule, go with one of the target retirement funds such as Vanguard has. You may not have the supposed optimization that GPS provides, but the expense savings of up to 1.9% per year will add up quickly through compounding, in my opinion.

Ric Edelman is a stock salesman. As a stock salesman he has done a great job in positioning himself. This book is another in a long line of "churning" advice. Sell your index funds for Wall Street's newest "next great thing." Solve the problems of mutual funds, which were solving the problems of individual stock ownership. He does a great job in pointing out some of the problems, the ones he wants to solve, yet leaves unsaid the real problems. Ask him about the Dalbar Studies?

Claims of 12% returns are usually just that for financial planners. There is no accounting for the claims. The truth is that you can count on the fingers of one hand the folks who have beaten the market for a 15 year time period in public. So what is left for stock salespersons is to keep their customers eyes on the "expense" ball.

Also self serving is his call to ignore tax considerations in your planning. Since taxes are the largest expense for most of us, a call to ignore taxes is simply wrong. Another weak point of the book is his treatment of life insurance. He simply ignores the reason that term insurance is so much less expensive than permanent insurance. He also ignores the estate planning aspect of insurance. This is not to say that everyone should invest in permanent insurance, only that it is not as simple as Edelman says. Annuities are a proven strategy for guaranteed retirement, something that equities aren't. Of course this is self serving if you remember what Edleman is; a stock salesman. The battle between Wall Street and Insurance companies for consumer dollars has a long and ugly history, which Edelman makes clear with his simplistic, disinformation campaign against insurance products.

Overall, Edelman's book is strongest in pointing out the abuse within the mutual fund industry. Of course this same mutual fund industry is where he has been putting his clients money for the last 20 years. Its weakest in its singular attempt to get people to invest in institutional funds, where commissions (transaction costs) can cost you as much as the hidden expenses he points out in the mutual fund industry. I wonder if this is not a continuing battle against insurance agents who can and do sell mutual funds.

I feel like I've been lied to by the author himself. He would be much more credible if he just admitted his reversal on index funds. I have been a faithful reader, listener to his radio show, subscriber to his newsletter, etc., but this book has made me look elsewhere since he now contradicts a lot of things in his previous books. I feel like I've been had. My guess is he knew about the mutual fund industry, indexing, etc., while he was putting out his revision of The Truth About Money (which went against indexing and was pro-mutual fund.) Nothing more than a salesman. Plus, he always talks about, "past history is no predictor...," yet his recommendations are based upon past history, e.g., stock market gains. Ray Lucia, here I come.