One of the things that amaze me is how little time people devote to preparing for retirement in terms of having enough money to retire with the lifestyle they desire. I find that the average person spends more time throughout his/her lifetime preparing for vacations than thinking about retirement. According to actuarial tables now, men and women are projected to live to be 85-87 years of age. Therefore, if you return at age 65, you will need to have your nest egg last for 20 years or more. Most people start thinking about retirement in their late fifties and early sixties. Due to the power of compounding and lack of an income stream in several years, there is very little that can be done to affect the size of your retirement portfolio. With that being said though, it is never too late to start. The earlier the better, but you can start learning about investing at any time to either take control or your own finances or ask your financial professional more detailed questions and understand his/her answers.
I have devised a list of recommended books to read which will help you get up to speed on the various topics and concepts involved in investing. My goal was to pick a set of books that will take you approximately 20 hours to read. If you read only one hour per week, you will be done in about 4-5 months. The selected book list will put you in the 90-95th percentile of all individual investors in terms of your knowledge base. Not a bad return for one hour a week! I have included links to all these books on Amazon.com, so you can get more information. However, all of these books are available at the library. So there is no need to purchase them unless you want to. I also will post a list of books with what I would consider intermediate concepts about the financial markets and investing. After you read the beginner books, you may find that your interest level is piqued a bit. The list is as follows, and I suggest you read them in order:
1) A Beginner’s Guide to Investing: How to Grow Your Money the Smart and Easy Way by Alex Frey
- This book will help you understand the financial markets in general. Additionally, the book touches on a number of concepts I have already presented in my blog. While I do not agree with all the information within this book, it is still a great start.
2) John Bogle on Investing: The First 50 Years by John Bogle
- Now this book may be somewhat dated, but it is a classic treatise on the financial markets. Bogle is the famed leader at Vanguard, and he was a pioneer for passive investing. The book looks at a long period of time and shows how active and passive investment strategies differ. As you will see, he is definitely a proponent of index mutual funds or corresponding ETFs. With that being said though, the historical information he presents is fairly objective. It is a great foundation to have when you speak with anyone about active investing and how asset managers try to beat their various index performance returns.
3) Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies, 4th… by Jeremy J. Siegel
b. Dr. Siegel is a professor at the Wharton School of Finance in Pennsylvania. He has written about the stock market and long-term investment returns for decades. Dr. Siegel usually makes several appearances on CNBC over the course of the year. I would regard him as one of the experts on market history. This book will take you beyond the Bogle concepts and delve deeper into the details.
4) The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel by Benjamin Graham and Jason Zweig
b. This book is a classic. Ben Graham is known as the father of value investing and security analysis. Warren Buffett says that this is one of the four books that he considers must-haves and is on his bookshelf. Warren Buffett, need I say more! The book has the classic text, but Jason Zweig will comment on each preceding chapter. Keep in mind that this book was originally written over 50 years ago. You need to bear with the text and let Mr. Zweig bring it to life and illuminate how its concepts are very relevant today. Graham introduces the concept of investing versus speculation and how to control your emotions. Once you read this book, you will see that a great deal of the financial advice out there leans more toward speculation rather than investing.
5) Psychology of Investing (5th Edition) (Pearson Series in Finance) by John Nofsinger
b. As a part of transparency and full disclosure, Dr. Nofsinger was one of my college professors. Now if you asked him who I was, you would get a blank stare though. Just wanted to let you know that I am not pushing a book for someone I know. This book is a great way to learn the basic concepts of behavioral finance. Behavioral finance is the field of study that looks at how a person’s emotions affect his/her investment decisions. The academic community approaches the topic of investing from the assumption that all investors act rationally. When it comes to money though, very few people are able to totally block out their emotions. This book is written for undergraduate and graduate students of finance, but you will be able to follow it after you have read the preceding four books. One of the main reasons that individuals go to financial professionals and pay substantial fees is because they cannot control their emotions. Now you will never be able to totally eliminate your feelings from your personal finance, but you can become much more aware when you are using “false logic”.
I have included these five books to get you started on your road to planning for retirement or investing for any long-term financial goals for that matter. Each book will take you roughly four hours to read which is how I got to the 20-hour figure. Trust me, you will feel much more comfortable about investing after you read these books. You can demystify the world of financial markets and how investments really work. As I mentioned previously, you may still want to utilize a financial professional, but you will be able to ask much more informed questions. Furthermore, you may ever decide that you do not need a financial advisor whom you pay annual fees to. You may feel comfortable setting up an investment portfolio and then sitting down with a well-respected financial planner for two hours a year. A good financial planner will usually cost $250 per hour, so you will pay $500 in total. However, if you have $1 million in assets and your financial advisor charges you 1%, you avoid a $10,000 annual fee. The sooner you start learning about investing, the more fees you will be able to avoid over your wealth accumulation phase and during your retirement. The fees add up over time, and, as I have said in previous posts, they represent an opportunity cost. Due to the fact that they are an opportunity cost, you could have invested the fees (in this case $9,500 which is $10,000 minus $500) into a simple index mutual fund or ETF and earn the long-term historical return on stocks. The numbers get to be staggering, so it “pays” to do some homework. Just think about it this way: should you really spend more hours planning for vacations than thinking about 20+ years in retirement and how you will ensure that you live the lifestyle you want after working hard all your life? Plus, you probably want to give as much money away via your estate to family, friends, and charity when the time comes.