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How a Second Grader Beats Wall Street: Golden Rules Any Investor Can Learn Paperback – January 25, 2011
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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 MoneyBy 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...
- They love to buy high and sell low. They buy after the market is up and then panic and sell when the market falls.
- 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.
- They believe anything they want to believe. Why would sophisticated people give Madoff $50 billion without knowing what he was doing with the money?
- 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.
- 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.
- 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.
- 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.
- 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?”
- 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.”
- 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.
--This text refers to the
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Top Customer Reviews
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.Read more ›
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.
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.
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.
Most Recent Customer Reviews
I have read a lot of finance books through the years. One thing I notice is - generally, at some point in most or all of these books, I become confused. Read morePublished 22 days ago by ccapegirl
True to a point. I definitely think you can more than this book describes with not much more effort. Read morePublished 28 days ago by IMAD!man
My wife called Allan Roth on the phone this morning to help her make the decision whether to hire Allan as her financial advisor for $450 per hour. Read more
Roth does a great job here of not only giving a lot of good advice, but explaining why his advice is right--in a succinct and comprehensible way. . Read morePublished 2 months ago by J. Davis
It's a good book that offers solid advice on passive investing and cost reduction. Repetition is used as reinforcement in this book. Read morePublished 3 months ago by Jack
This book literally changed my life. I was recommended this after reading "The Little Book of Common Sense Investing" which is also excellent but much more dense. Read morePublished 4 months ago by N. Farina