by Jason Zweig
Reviewed by Jon Ford, CFP®
Jon Ford, CFP®, heads CF Financial Planning Solutions, Inc. in Mesa, Arizona. He writes a regular "Financial Fundamentals" column for the Cedar Falls Times in Iowa.
Most of us know Jason Zweig as a personal finance columnist at the Wall Street Journal. Before that it was Money Magazine, Forbes, and occasionally Time Magazine. He's also authored Your Money and Your Brain and edited the updated version of Ben Graham's The Intelligent Investor. In all this, Zweig has demonstrates exceptional appreciation of the ongoing developments in psychology, economics, and neuroscience as they relate to personal financial decision making.
This book is the latest in John Wiley's "Little Book Big Profit" series. The purpose of the series is to bring the brightest minds to readers so they can pick and choose from the best investment advice available. The book's 22 chapters live up to this purpose, giving the reader solid, research-based and practical information about investing.
Zweig offers three commandments related to investor risk-taking. He follows with the importance of budgeting and reducing debt, realizing that you cannot have both low risk and high yield in the same investment and knowing the six basic rules for keeping cash safe. You'll learn why money market funds don't belong in a retirement account but TIPS do.
He begins a discussion about bonds in a portfolio by summarizing, "all you need to know about bonds while you stand on one foot: Don't reach for yield." He follows with a rich discussion of why and how to select bond funds for your portfolio while favoring low-cost bond index funds over all others.
Regarding stocks, Zweig says, "What history does prove is that how risky stocks seem and how risky they actually are, are inversely correlated." His discussion of this is one we should have with each of our clients.
As obvious as it should be, we're reminded to avoid thinking stocks are a sure thing, even over the long term. We're told how to spend less, get our kids through college (and no, a 529 plan may not be the answer), and the dangers associated with ultra ETFs, hedge funds, and commodities. We are cautioned against emerging markets, but like other cautions, we are taught how and when these perilous assets may add value to our portfolios.
Zweig blasts acronyms (CBO, ETF, IPO, TIGR, etc.), and calls these Wall Street acronyms "WACronyms" because they appear innocent enough but are full of wacky complications and incomprehensible risks.
Finally, you'll learn how to pick an investment adviser and why the difference between men and women suggests it's important for the wife to arrive a bit late to the first meeting with an investment adviser. An insightful list about how to avoid fraud and test claims finish out this book.
The book is a great reminder of what we do for clients and why we do it. Investors will find this book easy to read, packed with sound advice and leading to often overlooked but extremely critical investment judgments.
John Wiley & Sons (2010)