Thursday, January 23, 2014

Thrift Week Day Seven: The Only Investment Guide You'll Ever Need

In my efforts to live an ecofrugal life, I tend to spend a lot of time "sweating the small stuff," as Amy Dacyczyn (all hail the Frugal Zealot!) would say. Most of the posts on this blog, for instance, tend to be about tiny steps that save us just a few dollars, like preserving our basil crop or finding ways to keep warm at my desk or decorating the house for Christmas as cheaply as possible. And as the Frugal Zealot notes, there's nothing wrong with focusing on tiny details; in fact, as she notes in her article "Do Sweat the Small Stuff," focusing on tiny details is a good thing, because lots of tiny things done consistently over time can add up to big savings. The only problem is that it can be easy to get bogged down in all these little details—that is, to spend all your time thinking about how to save money—and lose sight of the big picture, which is what you're saving for. In my case, when I stepped back to take a look at the big picture, I concluded that our primary financial goal is to achieve financial independence: to be able to get by, if we so choose, without a salary of any kind. And to achieve this goal, we need not only to save money on a day-to-day basis, but also to invest the money we save as wisely as possible to build up our nest egg.

That's where the final book in my Thrift Week series comes in. The Only Investment Guide You'll Ever Need, by Andrew Tobias, is, in the author's own words, an "immodestly titled book" (he blames the publisher for that) with a perfectly modest goal: to steer you toward the simplest, surest path to financial security. The steps on this path, as Tobias sees them, are:
  1. Cutting your expenses as much as possible, so that you can live comfortably on less income.
  2. Setting aside a nice big chunk of your money in safe, liquid investments to see you through any emergency.
  3. Putting the rest of your money—your long-term investments—primarily into stock-market index funds, which will yield the best return because they keep expenses low. (Tobias recommends splitting these between U.S. and foreign investments to protect yourself against big swings in the U.S. market.)
  4. Sticking with this plan regardless of what the market is doing. Over the long term, the plan will work regardless of short-term bumps and dips, and swerving from it in response to a single piece of good news or bad news is a good way to derail your long-term savings.
Of course, there are lots of investment books on the market, and Tobias freely admits that while his "may be the only investment guide you'll ever need, it is by no means the only investment guide that's any good." But for an ecofrugal investor, this book has several big advantages over most of the others. First, it's one of the few that focuses on reducing your expenditures first, on the theory that "a penny saved is two pennies earned" after taxes. Tobias devotes an entire chapter to tips for saving money on nearly everything: food, vacations, cars, insurance, phone and Internet service, college tuition, books, TV, and on and on. It's the only investment guide you're ever likely to see that offers advice such as "use the library," "quit smoking," and "drink water." He even recommends buying your fiancĂ©e a cubic zirconium for her engagement ring, rather than a real diamond, and putting the savings into "matching his-and-her Roth IRAs." (Of course, given that Tobias himself had a male life partner, presumably he's never had a chance to see how this strategy goes over in real life. I know I'd rather have an IRA than a diamond that could easily be lost or stolen, but somehow I suspect most women wouldn't agree with me.)

Second, Tobias's investment guide, like the Car Talk book, focuses on the big picture. As Tobias explains it,
This one is about the forest, not the trees. Because if you can find the right forest—the right overall investment outlook—you shouldn't have to worry much about the trees. Accordingly, this book will summarily dismiss investment fields that some people spend lifetimes wandering around in. For example: It is a fact that 90% or more of the people who play the commodities game get burned. I submit that you have now read all you need ever read about commodities.
This brings me to the third big advantage of this book: Tobias's writing style. While it may not truly be the only investment guide you'll ever need, it is almost certainly the only one you'll ever read just for the fun of it. The biggest problem with most investment guides isn't that their advice is bad (although sometimes it is); it's that the material is so incredibly dry that you'll probably have too much work just slogging through it to figure out whether the advice is actually useful. This book, by contrast, brings its points to life with loads of humorous anecdotes, like a trip to the racetrack that involved an eventful bet on a long shot named Willow (the phrase "Come onnnnnn, WILLow!" appears as a catchphrase throughout the book for referring to any sort of long-shot investment), or an analysis of a celebrity life insurance ad featuring Gavin McLeod, or "the story of The Greatest Moment of My Life" in the Decision Analysis class at Harvard Business School. (I won't spoil the story for you by repeating it here, but a footnote at the end of it remarks, "Herewith a list of all my other triumphs at Harvard Business School: I graduated.") Because the stories hold your attention, the useful advice actually has a chance to sink in, instead of vanishing into the ether the minute you close the book.

In summary, I'd recommend this book for two groups of people: (a) anyone who has money to invest, and (b) anyone who wants to figure out how to get more money to invest. In other words, pretty much everyone.
Post a Comment