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For the next several weeks, I’ll be working my way through the book Wise Investing Made Simple by Larry Swedroe. This review covers the first eight chapters.

When I started Wise Investing Made Simple, I expected to be told to invest in index funds simply because that’s what I read on personal finance blogs as the “right” strategy. Other than that, I had no idea what it might say. I will be the first to admit, I know very little about investing. I want to know more about it, but obviously, I don’t want to know badly enough to have actually made some effort to learn much. So although I had no idea what else this book might say, I was still very excited to read it and see. I’ve divided the book up into sections for my review based on the topic of the chapters, and my first section covers the first 8 chapters.

This section basically talks about the market as a whole and how it works, financial advisors, and the elusive pursuit of beating the market, as well as how markets are efficient. The book used both explanations and stories to illustrate concepts, and I found that style very appealing. Be warned though that the majority of the analogies are sports ones, and although I enjoy sports and therefore liked them, it may not appeal to everyone. There are a few key concepts I learned about in this section, and I am going to explore those in detail for I found them really enlightening. Understanding the “why” of passive investing as well as the “how” is something that is very appealing to me, and this book so far has helped to do that. This is by no means everything the book covers, but these are the ideas that really clicked in my head and made me examine some assumptions about the stock market and investment strategies I didn’t even know I had.

Do financial advisors who claim to be able to beat the market recommend the same funds now they recommended 5 years ago?

The first concept that really made me think was this one. The first chapter is a story about a woman who has the choice between two financial advisors, one who has a passive investment strategy (not trying to beat the market simply establish a level of risk they find acceptable) and the other has an actively managed approach (trying to beat the market). When the woman talks to the passive-approach manager and asks how they can compete with the actively managed fund, he tells her to ask the broker what he was recommending five years ago and see if those lists are the same. The idea is that it is easy to find funds that outperformed the market in the past, but hard to predict which will in the future. I’d never really considered it that way, but it makes a lot of sense.

Markets are efficient.

The stock market in this section was compared and contrasted to betting on sports. In sports, we have amateurs (you and me) betting on different teams and basically setting the prices and point spread by our limited knowledge. We’re allowed to use insider information (if I know someone on a team is hurt I can use that knowledge in placing my bet) and yet, the only people who truly become rich betting on sports is the bookies. Compare that to the market, where professionals (financial advisors) are the ones making decisions about who to bet on (buy) and against (sell) and insider information is not allowed - and it is easier to see why the stock market runs efficiently and is hard to exploit. By the time the average person hears anything about a stock, it has already been incorporated into the price the stock is selling for. And the financial advisors are the ones making money (from fees) not the investors.

It’s not impossible to find an undervalued stock and exploit it, but it is self-limiting.

This was one of my favorite analogies in the entire book. The idea is, if you find a $20 bill on the ground, you pick it up, right? But you don’t then abandon your job and spend the rest of your life searching for $20 bills on the ground. An investment strategy based on finding winners other people have overlooked is like that. It is not impossible to do, but basing your entire strategy on trying to do it again and again is very hard. And once the undervalued stock is found, it is only undervalued for so long before other people realize it and get in on it too, and the market corrects itself.

Collective Wisdom Sets Prices

The prices of the market are not just set by a single investor or a single institution. They are set by the entirety of the market - the collective wisdom of all the people who participate. You may be able to outperform this collective wisdom, but the concept that you will be able to do so consistently and in perpetuity is a very tough one to take on. In this part the book goes into detail about a few different funds, showing how at one point they were great outperformers but they all eventually became underperformers. Looking back, you can pick what funds to invest in and where to jump ship, but the question is, can you do that looking forward? And in some cases, if you don’t know exactly the right time to sell and move on, you can lose a significant portion of your investment at once and not recover it. I loved this quote: “I own last year’s top performing funds. Unfortunately, I bought them this year.”

So, what is an investor to do?

So, now that we’ve talked about why market-timing strategies to “beat the market” don’t work, what is an investor to do? That’s what we’ll talk about next week. There’s a little more about breaking down assumptions that people make about investing and about the market, and then Swedroe starts talking about the “wise investing” part - ideas on how to make smart choices and let the efficiency of the market work *for* you instead of *against* you. Hopefully we’ll all learn how to provide for our futures with a level of risk we’re comfortable with.

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My next book review is Wise Investing Made Simple by Larry Swedroe. I was given this book by Pinyo of Moolanomy, because he thinks it is a great book and wanted to pass it on, and he probably thinks I need the help. And he’s probably right.

Before even receiving the book, from the title and the synopsis I had read about it, I basically thought it would be a book with one message: Invest in Index Funds. Navigating the personal finance blogosphere, that strategy is touted as the way to go for many people, and when I hear “investing” and “simple” in the same sentence, that is what my brain jumps to. I’m looking forward to getting into the book in detail and seeing if my initial assumption is right, or if there is a lot more to it than that. I don’t think there can be a *lot* more to it, or it wouldn’t be “simple”, right?  But I’ve been wrong before.

I was interested in seeing how someone was going to turn that advice into an entire book, and also learn more about index funds in general, because all I know about them is that they follow an index. Meaning their investments mirror a group of stocks as a whole, I think, like the Dow Jones Index.  I think.

Okay - now we see I still have a lot to learn and understand, and why I thought this book would be interesting.

When I received the book, I leafed through it, and it seems that the book is organized into very short chapters, some which relate a story to illustrate a point, and some which are full of information relating to the stories and explaining what they mean in terms of investing. There are 27 chapters, and I won’t be reviewing them one by one like I did with Smart Couples Finish Rich, but I am going to break my review into several parts (probably 5 or 6) and review a chunk of the book at a time and my reaction to it, and what I think I’ve learned and can apply to my own situation. I’m excited to read this book and digest it and come up with what I think of the advice overall, and how accessible it makes understanding investing to me, the novice.

So that’s what will be going on here Fridays at lunchtime for the next few weeks. Learn about investing along with me! Once we all have some money (it’ll happen!), we’re going to need to know what to do with it….

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First off, welcome to my new visitors from Blogging Away Debt! I have a guest post there today about How I’m Staying Motivated Through a Setback. If you are one of my regular readers and haven’t seen it yet, I encourage you to click over and read it! If this is your first time visiting my blog, I encourage you to check out my about page for some background about me, our journey, and our progress, as well as the “Popular Posts” listed in the sidebar, and a few of my most recent posts that got people talking:

• Measures Of Financial Health: Then and Now
• That’s Crazy Talk!
• Temptation at the Scrapbook Store

Second, this is the post where I usually do my book review, but I finished my review of the book I was reading, Smart Couples Finish Rich, last week. I had a very positive response to the review concept so i will be starting a new book review soon (hopefully next week). I have a copy of an investing book, The Little Book That Makes You Rich, making its way through the mail to me because I won a contest at Cash Money Life. Thanks! I have also managed to get a copy of Wise Investing Made Simple which should arrive here sometime in the next week or so. Investing is something I know nothing about but it seems those two books might help me get some general ideas and concepts and learn a few things along the way, and share them with my readers too.

As well as those two books, I have a $17 store return credit at Barnes and Noble that I really need to use up soon, and I was thinking about maybe getting Mary Hunt’s The Complete Cheapskate. I could definitely use more frugal tips to help me get out of debt! And finally, I was sent a copy of Healing Your Financial Soul by the author and although it is much more about changing your attitudes towards money than actual information regarding debt freedom, and relies heavily on the power of positive thinking to see you through, it is an interesting read and I may do a one post review of the book once I have finished reading it.

So a lot of book possibilities on the horizon! Stay tuned to see what comes up next week and feel free to suggest future books in the comments!

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For the past ten weeks (with a small hiatus for the Thanksgiving holiday) I have been reviewing David Bach’s steps to becoming rich in Smart Couples Finish Rich. There were some steps I found easy, some I found not quite as easy, and some I found hard to even consider (increasing income by asking for a 10% raise? Maybe someday…). But overall, I am pleased with the book and thought is was a worthwhile read for a few key reasons.

First, Bach encourages communication. My spouse and I have a very good relationship on the communication front, but more communication can’t hurt and the book gave us ideas on things to talk about that we hadn’t really considered before. I learned a lot about how my spouse’s values and ideas regarding money had been formed as well as his feelings on other deep personal issues that may not have come up for us in the course of our daily lives. Honestly, I’m still as crazy in love with my spouse as I have been our whole relationship and I can’t imagine spending my life with anyone else, so the more we talk and know about each other’s deepest feelings, values, and desires, the better.

Second, Bach encourages organization - another thing I am a huge fan of. Many of the chapters involved organizing finances and creating systems that are simple and simply work. I found a lot of great ideas reading these.

And finally, how Bach writes, for me, was very motivating. He really made me want to get up and do things. All of the steps seemed approachable and doable (except maybe the asking for a raise one) and I felt really empowered reading many of the chapters.

The one big thing that I wasn’t so fond of throughout the book was how each new chapter had an underlying assumption that you’d finished the step in the chapter before. For someone who is living paycheck to paycheck, under a bit of debt, and not saving enough for retirement, changing everything all at once will take time. I guess one way to read the book would be to not read another chapter until the step before was done, but the book might take multiple years to read that way. I do, however, look forward to rereading this book in a few years in its entirety and seeing how far I’ve come.

The big question I think is - did Bach make me believe I am part of a smart couple who can finish rich? I think he did. Or at least, he made it feel in the realm of possibility to someday be rich - something I honestly never have considered. My goal was to “get by” and I think now, my goal is to “get by well”. So for that alone, I think the book was worth the read.

If you have read Smart Couples Finish Rich (or even if you’ve just read my take on it) weigh in in the comments and let me know what you thought!

Want to read more in detail reviews of each step to finishing rich? My chapter by chapter reviews of David Bach’s Smart Couples Finish Rich are as follows: the introduction can be found here, the review of step 1 here, step 2 here, step 3 here, step 4 here, step 5 here, step 6 here, step 7 here, step 8 here, and step 9 here.

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Each Friday for ten weeks I am reviewing a chapter of David Bach’s Smart Couples Finish Rich. The introduction can be found here, the review of step 1 here, step 2 here, step 3 here, step 4 here, step 5 here, step 6 here, step 7 here, and step 8 here.

So here we are at the final step, step 9. I’ve been thinking all week about if I feel more like a smart couple who will finish rich. I mean - I’ve always felt smart in general, and my spouse is a pretty smart cookie too. But are we smarter about money now than we were when we started and do we believe we too can finish rich? I’m going to have to give that more thought as I learn Step 9: Increase Your Income By 10% in 9 Weeks. If this involves my spouse asking for a raise it just isn’t going to happen - he’s not assertive like that and his company has a strict schedule of salary reviews (once a year, that’s it).

And, of course, I was correct and the income increase results from a raise of your current salary. You deserve a raise! And, honestly, in reading the chapter, I feel swayed by the argument. It is not going to get my spouse to ask for a raise, but it might if it were me (easy for me to say that though because I’m not the one who has to do it heh). But let’s look at what the chapter offers before getting into a huge discussion about it. The ProActive Income (what Bach calls it) Nine Week Plan begins!

Basically, the beginning of the chapter is all about why you deserve a raise (as long as you’re good at your job). It costs less to keep good employees than hire new ones, but even so, loyalty is not generally rewarded because it doesn’t have to be (the employee stays complacent at the lower salary and never tries to leverage more). This chapter is all about being paid what you’re worth, and that involves asking for (and receiving) a 10% raise. If you are self-employed, you raise your rates by 10%.

Week One is taking stock of the reality of your situation, which is determining your true hourly wage, determining if the company you are working for is growing or declining, and making sure you are in action mode and not complaint mode. In week two, determine exactly what you want and put it in writing, and then in week three, clean up your mess! The office, home, everywhere. Make it all neat and sparkly.

Week Four begins the big action phase - being clear on how YOU add value. This involves talking to your boss. Then in weeks five through eight, you work up to asking for the raise - by focusing on what part of your effort at work brings the most results, looking for a new job, practicing asking for the raise, and then in week eight - do it. Ask for that raise! Week Nine is for the celebration.

In reading the chapter, honestly, it sounds completely reasonable. It sounds like a recipe for success! Which is why, in a few words, debt stinks. My spouse won’t do this, and frankly, I don’t really want him to. With any reward comes a bit of risk, and if this backfired and he lost his job, well… we’d be in a whole heap of trouble. If we were $30,000 less in debt, then there would be a LOT more room for risk-taking. That both motivates me to try and be even more proactive about finding ways to reduce our debtload and also depresses me about the situation we are in.

On the other hand, I’ve tried to implement some of the strategies in the book in my own income generation. I’ve bumped prices where appropriate in my alternative income ventures, and that is actually working out fine. I also am working on adding another source of income (tutoring) to my arsenal, which is not increasing my income in the way the book suggests, but is increasing my flexibility and income streams. So… we’ll see.

The book has been a good read for me, and I have a lot of final thoughts, which I’ll share next week in my final installment of my review of Smart Couples Finish Rich, with a note about the epilogue and resources in the back of the book, as well as my overall feelings about where I was when we started reading the book and where we are now. And I’ll have to find a new book to read… hmm.

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