Daniel Solin, a securities arbitration lawyer, has penned a short and sweet book on investing for all types of investors. The author's four-step investment strategy is one that is well known and has been espoused by many market veterans (especially John Bogle, the inventor of the first index fund at Vanguard) and the financial media (selected magazine articles and selected investing books) for years.
Solin recommends that investors follow four steps with their investments to beat the vast majority of professionals:
1. Determine your asset allocation based upon your personal parameters (Note: author provides a multi-page asset allocation questionnaire to determine a specific score for each individual's circumstances and risk tolerance).
2. Open an account with Fidelity Investments, Vanguard or T. Rowe Price.
3. Set up your portfolio among three specific no-load, low internal expense index funds in any of the three fund families representing the total U.S. stock market, international market, and U.S. bond market, or purchase three specific similar in composition ETFs.
4. Rebalance the portfolio twice a year.
The author provides readers with a specific percentage of dollars to be invested in each fund or ETF depending upon the investor's risk tolerance. In an appendix, he provides the historical returns of these portfolios for the four risk combinations (e.g., 20% equities/80% bonds, 40%/60%. 60%/40%and 80%/20%).
He appropriately warns investors about hedge funds, house funds, margin, B and C mutual fund shares, and other concerns that result in higher costs and lower returns. With the advent of the Internet, investment scams have proliferated and investors need to be exceedingly careful with their money.
While most of the author's points are on solid ground, I take issue with his chapter titled "Nobody Can Time the Market." The author mentions that market timing is nothing but a shell game, and that no one can consistently predict the market's direction. I find that assertion not credible. The main goal of market timing is to reduce risk, not beat the market. The key to investment success is to look at risk-adjusted returns, since bear markets can devastate portfolios and take many years to recover. The Hulbert Financial Digest, an independent and authoritative rating service, tracks stock and mutual fund newsletter writers, as well as market timers. The digest provides data on specific market timers that have beat the market on a risk-adjusted basis for the last 10 years or more. So yes, there are successful market timers contrary to the author's assertion.
Solin's basic premise is that most investors with less than $1 million in investible assets do not need the help of investment advisors and brokers, since their assistance does not translate into improved returns over the long term. Therefore, why pay them commissions and fees when they offer no value-added. Wealthy investors may benefit from the more complicated investment strategies offered by advisers.
Overall, the author does a credible job of providing investors with the basics of a solid investment plan and how to put together a viable low-cost portfolio that will appreciate over time. This is a quick read and will take about an hour or two to get through. After that, it is up to the reader to take action, and that may be the biggest stumbling block to his/her future investment success.
