By Tim Decker
This book is subtitled, Financial Truths that Wall Street Hopes You Never Discover. Taken together, the twin notions of "sleeping well at night" and revealing "financial secrets" offer readers a concise and very readable rendering. The book describes how to avoid the ubiquitous advertising excitement and poor financial choices that lead nearly everyone to a lifetime of poor to mediocre portfolio returns.
Central to the author's developing argument is his discovery that the most respected portfolio managers don't earn rates of return any better than basic indices. This uncomplicated truth demands that financial institutions spend billions of dollars convincing investors that they can, in fact, beat the averages.
In eight chapters, Decker takes the reader through the ego-feeding characteristics of financial services ads, high-cost failures designed to beat the market, and the necessity and costs of frequent trading in mutual funds. He describes costs that cancel gains such as taxes and expense ratios. The fervor of his passion is expressed in what he calls "the ultimate arrogance: the 12b-1 fee." These and many other activities, he says, assure below-average investment returns for individual investors when compared to simple indices like the S&P 500.
The solution is familiar to financial advisers, but a mystery to the general public. To sleep well at night, the book tells readers to buy no-load index funds and avoid active money management, an action that, by itself has the likelihood of increasing a portfolio's return by 2 percent to 3 percent annually.
Decker speaks well of the Financial Planning Association's efforts to improve things for investors. Further, he describes investor performance, not investment performance as a major hurdle to portfolio growth. During the past decade the market had a return of about 9 percent, while during the same period the average mutual fund investor saw returns of only 3 percent.
Investment advisers are important, says Decker, for consultation, clarity and to bring discipline to the process, especially during volatile downturns as we've seen recently. The appendix contains essential questions for an investor to ask when interviewing anyone putting themselves out as an investment adviser.
This is my kind of book. Decker freely credits many mutual fund critics for his background information. The value of this book is that it incorporates the wisdom and findings of many great minds into a very readable book. Like other FPA members, my aim is to provide unambiguous, unbiased and competent investment advice to clients. This book is clear, names names, and staunchly advocates for the individual investor. I'll be handing out copies to students and clients.
Jon Ford, CFP®, of CF Financial Planning Solutions Inc. in Mesa, Arizona, is a frequent contributor to Between the Issues, and writes a regular "Financial Fundamentals" column for the Cedar Falls Times in Iowa.
North American Press Inc. (2008)