I recently finished reading The Smartest Investment Book You’ll Ever Read: The Simple, Stress-Free Way to Reach Your Investment Goals [Amazon affiliate] by Daniel R. Solin. It’s a relatively short book with one simple point: For most people, investing in index funds is smarter than investing in actively managed mutual funds.
The chapters are short and it’s a quick read. Avid readers with a few hours could get through the book in one sitting; with my dedicated reading time of 20 minutes a day post-midnight, it took me a few days to finish.
The Smartest Investment Book outlines, in each of its chapters, the difference between Smart Investing and Hyperactive Investing. Smart Investors understand, through seemingly unlimited research, that over the long term, the market always wins the fight against Hyperative Investors (also known as traders, brokers, stock pickers, etc.). Therefore, index funds whose goal is to match market benchmarks while charging low fees offer investors the best opportunities for growing their money.
Solin also focuses on asset allocation. The distribution of funds between stocks, bonds, and cash, between growth and value, and between small, mid, and large cap is what determines the likely long-term return. The book ends with a comprehensive questionnaire to help determine any individual’s appropriate asset allocation. The questionnaire is also available online on the book’s website, but unfortunately requires an email address and phone number.
I completed the online questionnaire (with a fake phone number, obviously) and I was told my asset allocation should consist of 90% stocks, the highest amount recommended by the book. The author feels (and shows through examinations of historical data) that any more than 90% of investable assets in stocks adds too much risk with no return over a portfolio with 90% stocks.
Is this, as the title claims, the smartest investment book you’ll ever read? While the quality of past books I’ve read does not predict future selections, I can say it’s the smartest so far. However, I would have preferred more hard data. I enjoyed the book and would recommend it to anyone who is ready to invest but wary of salesspeak. I’d also recommend the book to people who have already sipped the Kool-Aid, although they might not be open to what Solin claims. While the author puts a great effort into presenting the data to sway investors to become Smart about their investments, I don’t think everyone will be convinced. That’s not necessarily a bad thing, especially for those who do believe what this book has put forth.
The author, Daniel Solin, is a principal of Academic Wealth Management, LLP, a registered investment advisor that offers low-cost 401(k) plans that follow the philosophies laid out in the book.
Later this week, I will give away my copy of the book, so check back here often for your chance to get something for free.
Published or updated November 13, 2006.