Every Sunday, The Simple Dollar reviews a personal finance or other book of interest. Also available is a complete list of the hundreds of book reviews that have appeared on The Simple Dollar over the years.
A week or two ago, I was scanning the radio dial while on a road trip, looking for something interesting to listen to, when I stumbled upon a guy talking rather excitedly about investing. It was Adam Bold, and he was hosting a program called The Mutual Fund Show.
While I didn’t necessarily agree with his show on every point, I did agree with him on most things, and I did appreciate the enthusiasm he was bringing to investing. He made it seem incredibly approachable and even fun, while also keeping in mind the fact that it was quite important to your future.
After listening until the station faded out, I decided to see if Adam Bold had a book available to read, and he does. The Bold Truth About Investing is a thin little volume where Bold lays down his ten commandments for building personal wealth.
It is worth keeping in mind as you’re reading that Bold got his start by founding a financial advising firm, The Mutual Fund Store. While encouraging advising is naturally going to be part of his perspective (more so than mind), most of the advice in the book is quite good.
Some people are aggressive in how they like to invest. Others are conservative. Some people tend to spend what they have. Others can barely stand the thought of their investments not growing. We all have different personalities. The trick is being able to put the elements of our personalities that limit us aside when making investment choices. You have to be able to follow sensible principles when you invest, some of which may override your personality’s default.
Know When to Invest
Bold suggests holding off any investing until you’ve achieved two things: pay off “bad” debt (meaning those with high or variable interest rates) and build a “rainy day”/emergency fund. I completely agree with this perspective. If you’re on a sinking ship right now – which is where you’re at if you have “bad” debt or don’t have an emergency fund – putting money into investments won’t right that ship. Investments help with the future, but they can’t help if things aren’t right today.
Know Your Advisor
This chapter provides some good basic advice for finding a financial advisor. Bold talks about fee-based and commission-based advisors (I’d pretty much insist on a fee-based one if I were ever choosing one) and covers some basic questions to ask advisors. I treaded pretty lightly on this chapter because of the fact that Adam runs his own financial advising shop, so there was at least a little promotion of The Mutual Fund Store here.
Have a Plan
A plan starts with a goal. What do you want to do with your money? Do you want to have a very secure retirement? Do you want to build a house in ten years? Do you want your children to be able to go to college in fifteen years? A goal helps to establish a timeline and also helps to establish how much risk you should take on – without a goal, you’re flying blind. From a goal comes a plan – risk, diversification, updating your investments regularly, and so on.
Be in the Best Funds Possible
By “best funds possible,” Bold does not mean the ones that had huge returns the last few years. He means funds that have a long history of having solid and reliable returns. For me, this usually means index funds, but Bold doesn’t really look at those too much. Instead, he encourages looking at all funds and find ones with a mix of risk level that all have consistency in their returns over the long haul.
Avoid Any Hidden Costs
Here’s where I agree with Bold wholeheartedly. When you buy an investment, know every single fee involved before you buy. What’s the mutual fund’s expense ratio? More importantly, is the fund carrying a load – and if it is, avoid it like the plague. Bold does come out a bit against index funds in this chapter, arguing that although they cost more they tend to have a better return over the long haul. That might be true in some funds, but their year-over-year variability makes them more volatile. I’ll stick with my low cost index funds.
Don’t Buy What You Don’t Understand
If you don’t know what exactly an investment is, don’t invest in it. That’s simple enough. How deep does the knowledge have to go, though? Bold basically encourages people to be wary. If you can’t explain how the investment works in a sentence or two and can’t easily find out what the investment is made of, then you shouldn’t put your money in there. A black box managed by someone else is not something to trust your future to.
Be Proactive About Managing Your Retirement Investments
If you’re not investing for your retirement yet, start now. Start immediately. You need to be on the ball with your retirement, and the earlier you start, the less you’ll have to save (yes, seriously – if you start now, you won’t have to save as much as you would if you started in a few years). If you’re not sure what to do, just use your company’s 401(k) and choose a target retirement fund – you can always change it a bit later on. If you don’t have a 401(k), start a Roth IRA. The key is to start saving now.
Stick to Your Plan
You can’t react emotionally to what the stock market is doing. If you do that, you’re going to make investment mistakes. Markets are going to go up and down. That’s just what they do. When you invest in stocks, part of that investment means enjoying the years when the market is up 15 or 20%, but holding on for dear life during years like 2008 where the market is down 40%. If you jump off when things are flying downwards, all you’re doing is locking in your losses, because when you move to something more conservative, you’re giving up the “bounce” that stocks get when they hit bottom and rebound.
Live Well, For You Cannot Take It With You
When you’ve reached your investing goal, that means it’s time to start spending it. A 401(k) or a Roth IRA is meant to be used when you reach retirement age. It can be scary to see that total start to go down, but if you don’t start spending it, all you’ve done is create a very valuable asset to hand down to your kids.
Is The Bold Truth About Investing Worth Reading?
This is a short book, one that’s clearly written for people who are thinking that they ought to invest but are very nervous and unsure about the prospect. Bold uses very clear and straightforward language when talking about these things. I can easily see this book being exactly what a person might need to get over their nervousness about jumping into investing.
While I don’t agree with Bold on every point – for example, I think most people can manage their investments themselves using online tools and I think that index funds are the best way to go for investing – I agree with him on the vast majority of the principles outlined in this book. This is a great book to read for anyone who is trying to make up their mind about getting started with investing.