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How a Second Grader Beats Wall Street: Golden Rules Any Investor Can Learn Hardcover – March 9, 2009

ISBN-13: 978-0470375945 ISBN-10: 0470375949 Edition: 1st

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Product Details

  • Hardcover: 288 pages
  • Publisher: Wiley; 1 edition (March 9, 2009)
  • Language: English
  • ISBN-10: 0470375949
  • ISBN-13: 978-0470375945
  • Product Dimensions: 8.5 x 5.7 x 1.2 inches
  • Shipping Weight: 13.6 ounces (View shipping rates and policies)
  • Average Customer Review: 4.4 out of 5 stars  See all reviews (66 customer reviews)
  • Amazon Best Sellers Rank: #545,363 in Books (See Top 100 in Books)

Editorial Reviews

Amazon.com Review

Investing is simple, but never easy. We carry a lot of investment baggage, including hot tips from friends and the financial media, as well as complicated financial recommendations from Wall Street "experts." Yet, the biggest obstacle we face is the tendency to outsmart ourselves.

In order to overcome that obstacle, you need to follow straightforward strategies that will consistently push your portfolio ahead of the pack by an additional 3 to 4 percent annually. These are strategies that work in up markets, and especially in times of market crisis and panic. Most importantly, these strategies are basic enough for even a kid to understand.

In How a Second Grader Beats Wall Street, you'll follow the story of Kevin Roth—an eight-year-old who was schooled in simple approaches to sound investing by his father, seasoned financial planner Allan Roth—and discover exactly how simple it can be to become a successful investor. Page by page, you'll learn how to create a portfolio with the widest diversification and lowest costs; one that can move up your financial freedom by a decade and dramatically increase your spending rate during retirement. And all this can be accomplished by using some commonsense techniques.

Along the way, Kevin and his dad discuss fresh new approaches to investing, and detail some tried-and-true but lesser-known approaches. They also take the time to debunk the financial myths and legends that many of us accept as true and show you what it really takes to build long-term wealth with less risk. You'll also learn how not to confuse the unlikely with the impossible.

Whether you're young or young-at-heart, the straight-talking advice found here will help you:

  • Design a portfolio composed of a few basic building blocks that can be "tweaked" to fit your personal needs
  • Go beyond indexing, which owns the entire market, and actually beat the market
  • Reengineer your portfolio to stop needlessly paying taxes
  • Increase your return, regardless of which direction the market goes, by picking the "low-hanging fruit" we all have in our portfolios

Engaging and insightful, How a Second Grader Beats Wall Street takes you through Kevin Roth's real-life story, while driving home key strategies and tools you can implement in your own portfolio. With just a little time and a little work, you can become a better investor. With this book as your guide, you'll discover how a simpler approach to today's markets can put you on the path to financial independence.


10 Dumb Things Adults Do With Their Money

By second grade, we all learn some simple and truthful lessons about the world around us and how to navigate it. As life goes on, however, what we continue to learn is less about making us smart and more about making us outsmart ourselves in investing.

Adulthood apparently brings with it the feeling that important matters, such as our money, are too important to deal with simply. Why go back to the basics when there is the sophisticated, complex path to take? Sure, continuing on such a path offers a 99.9% certainty of underperforming simplicity, and will also set our retirement goals back by a couple of decades, but isn’t that how grownups invest? Unfortunately, yes. There are many dumb things that adults do...

  1. They love to buy high and sell low. They buy after the market is up and then panic and sell when the market falls.
  2. They play important games without understanding the rules. Any kid knows that if you don’t understand how a game is played, you can’t win at it. Same goes for buying a product that has a 471 page disclosure document no one can understand.
  3. They believe anything they want to believe. Why would sophisticated people give Madoff $50 billion without knowing what he was doing with the money?
  4. They pass over the low hanging fruit in favor of the fruit that is way out of reach, if it is reachable at all. They are so busy chasing their tails and trying to find that mythical person who will beat the market, that they miss the easy stuff right in front of them that will make them money, no matter what the market does.
  5. They think strangers want to help them. We teach our children the dangers of talking to strangers, then turn around as adults and hand over our nest egg to strangers that claim they want to help us. They’re helpful alright, helpful in transferring our money to them.
  6. They constantly complain about taxes, but pay more than they need to. It’s so easy to lower taxes when it comes to investing, why do adults go out of their way to pay more? Though with our current deficit spending, this may be okay.
  7. They lend money to people who they know can’t pay it back. Like a really bad chain letter, they sell the loans to other adults who think they are going to get their money back.
  8. They follow the herd. Like heat-seeking missiles, they go after whatever has been hot. They get into markets like China and India just in time to see them collapse. Remember the rule “don’t put all of your eggs in one basket?”
  9. They watch too much financial TV. Conventional wisdom tells us that a little knowledge is a dangerous thing, but so is too much information. Especially when it comes from the screaming, sound effect guy. Believing that the gurus on TV actually have a good track record and are giving good advice, is folly with a capital “F.”
  10. They spend their investing lives in a futile attempt to disprove second grade arithmetic. They think 10 - 2 = 12, as in if the market earns 10% and they pay helpers 2% of that return, then they will get 12%. Anyone knows 10 - 2 = 8.

Adults seem to love to overcomplicate things. Only really smart adults seem to get it. As Albert Einstein said, “If you can’t explain it simply enough, you don’t understand it well enough.” This book will show you how to simply profit from those sophisticated investors who will never again understand the simplicity of truth they once knew when they were in second grade.


Review

"This book acts as an apt reminder that simple can be good" (CEO Middle East, April 2009)

"Kevin Roth, the author’s son, is eight years old. He’s probably got a better investment portfolio than you do. This book reveals his secrets. Our take: Explaining how a second grader can whip most adult investors is a fun way to demonstrate the benefits of a simple indexed portfolio."
MoneySense magazine --This text refers to the Unknown Binding edition.


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Customer Reviews

It will be comforting "knowing our odds" while investing.
Kendall Sullivan
I scanned the book and found it to be a good guide for someone just getting started.
W. McReynolds
This book is a very useful tool and is easy to read, understand, and follow.
Great Outdoors

Most Helpful Customer Reviews

20 of 20 people found the following review helpful By David Parler on April 25, 2011
Format: Paperback Verified Purchase
This book is an easy read, but not an afternoon read.

Each chapter begins with a pertinent, topical, and usually humorous short quote and the chapter expands to explain in easy-to-understand detail, the tenants of the philosophy. Kevin, the second-grader, learns a basic life lesson on investing. This model provides an excellent motif for the quite knowledegable author (an accountant and financial advisor) to expalins the basics without "talking down" to the reader. There is truly something here for all levels of investing experience. And it's a fun read.

I am an experienced investor. I had read a short article regarding the portfolio and had replicated it in a pretend-buy-and-hold portfolio in mid-2006.
Later that year, I used "real funds" and opened an equal-dollar amount in actual accounts with a fee-only broker to manage and a sepaarte brokerage account that I actively managed. After three years, which included the market downturn of 2008 and the rebound in 2009, the set-it-and-forget-it portfolio beat myself and the broker. (I did come in a respectable second, however.)

Knowing "the answer" and "the trick" ahead of time did not ruin the story-line. I had often had an inner debate about how to best "beat the market." The above experiment was but one trial. I initially bought the book as a basic primer for a college-aged nephew who asked some very good questions about beginning investing. Not wanting to see him waste money on brokerage fees or see his initial investments underperform, I felt that index funds would be the best route for him and this book would explain why ... and provide some investment basics. It certainly does both.

My own "aha" experience came in Chapter 3.
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25 of 29 people found the following review helpful By Justin on December 28, 2011
Format: Hardcover Verified Purchase
I was quite disappointed by this book. Read the reviews and found mostly positive reviews and didnt make much of the negative ones because I thought it would still provide plenty of insight.

Long story short, condensed into a sentence this is the book: Wall Street takes two percent of your money, instead buy US Total Index Fund, US Total Bond fund and Total International Index Fund and they will only take ~0.2 percent of your money and you are "guaranteed to beat the market".

In addition to repeating the same messages over and over, the author CONSTANTLY refers us to "stories" about lessons he helped his son learn that we too should learn in such a simple, dumbed down manner that it is virtually insulting.

Overall the book seems to have sound advice, but there is no reason it should have taken 224 pages to give it. Save yourself the time and go to [...], view the secondgrader portfolio and see if it is for you.
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24 of 29 people found the following review helpful By Jane the gardener on August 11, 2009
Format: Hardcover Verified Purchase
Only read this book if you are willing to 1) learn something new, and 2) let go of old habits. I met Allan Roth when he taught a behavioral finance class for CPAs and attorneys at the University of Denver. I was so impressed by his presentation that I emailed him and asked if I could hire him as my financial advisor. I bought the book, which was pretty much the same as the class materials, but easier to carry around. I read the book several times and I still keep it out in my home office. His ideas are simple, logical, and completely contrary to everything I had ever heard about investing. Could this be why investing never made any sense to me? I used to think I was a weird CPA because I had no interest in finance. I wasn't interested because it made no logical sense to me, ever. I keep wonderfully detailed and useful spreadsheets (ask Allan, he'll agree) but I couldn't figure out what to do with this information. One thing I could certainly see was that...I kept losing lots and lots of money!! Suddenly, I didn't feel so dumb. I was right. Investing, as we know it, is a giant marketing scam. I turned my portfolio around and retired, as planned. I hope to never look back. I still find that I cannot discuss Allan's ideas with anyone because no one wants to listen to something so radical, so simple, and so logical.
I am following this up 2 years later, it is now Nov. 2011. I have kept all my investments as Allan designed them. Through all the chaos of the financial markets, my portfolio has held strong. I am still retired. What more could you want? I seek my thrills somewhere other than my financial portfolio.
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12 of 13 people found the following review helpful By Kerry Mcginley on May 22, 2009
Format: Hardcover
This is an excellent, common-sense guide that demystifies investing and offers a practical approach for building wealth. Allan offers a fun balance of entertaining family anecdotes and professional expertise to craft a book that's an insightful and enjoyable read. Most finance/investing books I read feel like homework; this is an enjoyable journey down a clearly marked path to navigate Wall Street.
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8 of 8 people found the following review helpful By Mike Piper on September 24, 2009
Format: Hardcover
When I first saw the title of this book, my thought was "No thanks!" I thought it was going to be some nonsense about how easy it is to pick stocks (or some such) and earn market-beating returns.

I couldn't have been more wrong.

Roth encourages you to implement a long-term, buy & hold strategy with an index fund portfolio. And he explains--in terms that even a second grader can understand--exactly why you'd want to do so.

Also sprinkled throughout the book are some warnings as to common psychological/behavioral investing pitfalls as well as tips to avoid them.

Altogether, Roth's book is one of my new favorites.
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