The book takes a common-sense approach to the financial world that's ideally suited to the everyday investor. It covers topics including:
- How to avoid competing against hedge funds in a game they've rigged
- What you can do today to avoid taxes tomorrow
- Wall Street's Dirty Secret: Forecasting is just guessing
- Why some of your investments have worse odds than a casino game
- How the media circus can derail your financial plans
- Surviving a world where financial advisors don't have to act in your best interest
Table of Contents
Acknowledgments xi
About the Author xiii
Preface xv
Introduction 1
Part I: Yes, The Game is Rigged, But You Don’t Have to Play 7
Chapter 1: The Times They are a-Changin’ 9
There is a World of Difference Between Speculation and Investing 10
So, Why is It So Damn Hard to Ignore the Hype?! 12
To Play, or Not to Play, That is the Question 14
Life at the Speed of Light 15
Lower Transaction Costs 17
Self-Directed Investing 20
High-Frequency Trading 23
The 24-Hour News Cycle 24
Globalization 29
The Rise of the Institutional Investor 31
The Bottom Line 33
Chapter 2: Don’t Play a Game That’s Rigged 35
The Upward Path of Markets 36
Asset Class Returns 38
A Twist in the Plot 40
Time in the Market versus Timing the Market 41
Why are Las Vegas Casinos So Nice? 43
The True Cost of Sitting on the Sidelines 45
Does Crisis Equal Opportunity? 48
Chapter 3: Guess What? A Forecast is Just a Guess 51
But Forecasting is Fun 52
Economists 54
Wall Street Analysts 55
Media Pundits 57
The Federal Reserve (the Fed) 58
So, What’s the Problem? 59
The All-Star Team 60
What Should You Do with Forecasts? 62
Part II: If You Don’t Know Where You’re Going, You Probably Won’t Get There 65
Chapter 4: You Must Know What Drives Investment Returns 67
You Can Beat the Dealer, But Can You Beat the Market? 69
It’s Hard to Stand Above the Crowd in a Room Full of Tall People 70
So, What’s the Solution? 71
Indexed Products 72
A Rules-Based Approach 75
Fundamental Factors for Success 78
Stock Market Factors 79
Growth Stocks 80
Value Stocks 81
Bond Market Factors 87
The Bottom Line on Factor Premiums 93
Chapter 5: You Must Have a Specific Financial Goal 95
Step One: Determine Your Vision of Retirement 96
Step Two: Determine How Much You Spend Today 98
Step Three: Determine When You Want to Retire 99
Step Four: Determine How Much Income You’ll Need in Year One of Retirement 99
Step Five: Determine Your Sources of Retirement Income 103
Step Six: Determine How Much You’ll Need from Your Savings and Investments 103
Step Seven: Determine a Sustainable Distribution Rate 104
Step Eight: Determine How Much Money You Need to Retire 105
Step Nine: Determine Your Plan to Accumulate the Money You Need to Retire 105
Putting It All Together with a Step-by-Step Example 107
Already Retired? 111
The Bottom Line 111
Chapter 6: You Must Invest to Meet Your Goal 113
How Much Money Do You Want to Make? 114
How Much Money Do You Need to Make? 115
How Much Risk Should You Take? 116
Sleeping on a Bed of Money 120
Adding Some Stocks to the Mix 121
Portfolio A 123
Portfolio B 123
What Portfolio Do You Want? 124
Still Not Convinced? 125
Enjoy Your Retirement! 127
Chapter 7: You Must Practice Smart Diversification 129
What is Smart Diversification? 130
You Don’t Want to Be a Pig! 130
Owning What You Know May Not Be Best 132
It’s a Big World 137
Sometimes You’re Trapped by Your Own Success 140
Dealing with Concentrated Positions 143
Smart Diversification Enhances Your Odds of Success 145
Winning the Lost Decade 147
Chapter 8: You Must Learn How You’ll Be Taxed 151
But First, the Hype 153
And Now, the Truth 154
Income Taxes: A Quick Primer 154
Are Taxes Going Higher? 157
Tax Diversification 158
Do You Know Who Your Partner Is? 159
As If That’s Not Enough … 162
What’s Certain in Life? 163
Part III: Just Because You’re Paranoid Doesn’t Mean They Aren’t Out To Get You 169
Chapter 9: How to Avoid the Taxman Without Going to Jail 171
Building Your Tax-Free Pool of Money 172
Accelerating the Flow of Funds to Your Tax-free Pool 176
Building Your Taxable Pool of Money 177
Do You Want to Keep More of What You Make? 181
Chapter 10: Sorry, But You’re Probably Your Own Worst Enemy 185
Tales Your Parents Told You 187
Anchoring 189
Confirmation Bias 190
Overconfidence Bias 192
Herd Behavior 194
Framing Bias 196
Hindsight Bias 198
Self-attribution Bias 200
Myopic Loss Aversion 201
Chapter 11: FYI, the Media Doesn’t Care If You Make Money 205
But Then There’s the Media … 206
Did Black Monday Spell Doom for Investors? 211
What Side of the Aisle are You On? 214
Would You Hitch Your Family’s Future to the Circus? 217
Chapter 12: Avoid the Wolf in Sheep’s Clothing 223
Does It Pass the Sniff Test? 224
Who’s Got Your Back? 224
Focus on Minimizing Unnecessary Fees 229
Is What You’re Buying Even an Investment? 232
Drowning in a Sea of Complexity 234
Do You Even Know What You’re Buying? 236
But My “Regular” Bonds are Free from Commissions, Right? 237
What are You Using Derivatives For? 241
Market Voodoo (AKA Technical Analysis) 243
Let Me “Sell” You an Annuity… 244
Now, Let Me “Explain” an Annuity… 245
The Bottom Line 247
Chapter 13: How to Survive a Bear Attack 249
Prepare for the Bear 250
Risk Capacity versus Risk Tolerance 252
Rebalance to Stay on Course 254
Buy-and-Hold Investing 257
Buy-and-Forget Investing 258
So, What Do You Do When Market Valuations are Extreme? 259
Does What Gets Measured Get Improved? 260
Ready for Some Good News? 262
A Better Life 263
Conclusion 267
Index 271
