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How a Second Grader Beats Wall Street: Golden Rules Any Investor Can Learn Hardcover – March 9, 2009
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In How a Second Grader Beats Wall Street, you'll follow the story of Kevin Roth, an eight-year-old who was schooled in simple approaches to sound investing by his father, seasoned financial planner Allan Roth, and discover exactly how simple it can be to become a successful investor. Page by page, you'll learn how to create a portfolio with the widest diversification and lowest costs; one that can move up your financial freedom by a decade and dramatically increase your spending rate during retirement. And all this can be accomplished by using some common sense techniques.
Along the way, Kevin and his dad discuss fresh, new approaches to investing, and detail some tried-and-true, but lesser known approaches. They also take the time to debunk the financial myths and legends that many of us accept as true, and show you what it really takes to build long-term wealth with less risk.
- Discusses how to design a portfolio composed of a few basic building blocks that can be "tweaked" to fit your personal needs
- Addresses how you can reengineer your portfolio in order to stop needlessly paying taxes
- Reveals how you can increase returns, regardless of which direction the market goes, by picking the "low-hanging fruit" we all have in our portfolios
With just a little time and a little work, you can become a better investor. With this book as your guide, you'll discover how a simpler approach to today's markets can put you on the path to financial independence.
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Investing is simple, but never easy. We carry a lot of investment baggage, including hot tips from friends and the financial media, as well as complicated financial recommendations from Wall Street "experts." Yet, the biggest obstacle we face is the tendency to outsmart ourselves.
In order to overcome that obstacle, you need to follow straightforward strategies that will consistently push your portfolio ahead of the pack by an additional 3 to 4 percent annually. These are strategies that work in up markets, and especially in times of market crisis and panic. Most importantly, these strategies are basic enough for even a kid to understand.
In How a Second Grader Beats Wall Street, you'll follow the story of Kevin Roth—an eight-year-old who was schooled in simple approaches to sound investing by his father, seasoned financial planner Allan Roth—and discover exactly how simple it can be to become a successful investor. Page by page, you'll learn how to create a portfolio with the widest diversification and lowest costs; one that can move up your financial freedom by a decade and dramatically increase your spending rate during retirement. And all this can be accomplished by using some commonsense techniques.
Along the way, Kevin and his dad discuss fresh new approaches to investing, and detail some tried-and-true but lesser-known approaches. They also take the time to debunk the financial myths and legends that many of us accept as true and show you what it really takes to build long-term wealth with less risk. You'll also learn how not to confuse the unlikely with the impossible.
Whether you're young or young-at-heart, the straight-talking advice found here will help you:
- Design a portfolio composed of a few basic building blocks that can be "tweaked" to fit your personal needs
- Go beyond indexing, which owns the entire market, and actually beat the market
- Reengineer your portfolio to stop needlessly paying taxes
- Increase your return, regardless of which direction the market goes, by picking the "low-hanging fruit" we all have in our portfolios
Engaging and insightful, How a Second Grader Beats Wall Street takes you through Kevin Roth's real-life story, while driving home key strategies and tools you can implement in your own portfolio. With just a little time and a little work, you can become a better investor. With this book as your guide, you'll discover how a simpler approach to today's markets can put you on the path to financial independence.
10 Dumb Things Adults Do With Their MoneyBy second grade, we all learn some simple and truthful lessons about the world around us and how to navigate it. As life goes on, however, what we continue to learn is less about making us smart and more about making us outsmart ourselves in investing.
Adulthood apparently brings with it the feeling that important matters, such as our money, are too important to deal with simply. Why go back to the basics when there is the sophisticated, complex path to take? Sure, continuing on such a path offers a 99.9% certainty of underperforming simplicity, and will also set our retirement goals back by a couple of decades, but isn’t that how grownups invest? Unfortunately, yes. There are many dumb things that adults do...
- They love to buy high and sell low. They buy after the market is up and then panic and sell when the market falls.
- They play important games without understanding the rules. Any kid knows that if you don’t understand how a game is played, you can’t win at it. Same goes for buying a product that has a 471 page disclosure document no one can understand.
- They believe anything they want to believe. Why would sophisticated people give Madoff $50 billion without knowing what he was doing with the money?
- They pass over the low hanging fruit in favor of the fruit that is way out of reach, if it is reachable at all. They are so busy chasing their tails and trying to find that mythical person who will beat the market, that they miss the easy stuff right in front of them that will make them money, no matter what the market does.
- They think strangers want to help them. We teach our children the dangers of talking to strangers, then turn around as adults and hand over our nest egg to strangers that claim they want to help us. They’re helpful alright, helpful in transferring our money to them.
- They constantly complain about taxes, but pay more than they need to. It’s so easy to lower taxes when it comes to investing, why do adults go out of their way to pay more? Though with our current deficit spending, this may be okay.
- They lend money to people who they know can’t pay it back. Like a really bad chain letter, they sell the loans to other adults who think they are going to get their money back.
- They follow the herd. Like heat-seeking missiles, they go after whatever has been hot. They get into markets like China and India just in time to see them collapse. Remember the rule “don’t put all of your eggs in one basket?”
- They watch too much financial TV. Conventional wisdom tells us that a little knowledge is a dangerous thing, but so is too much information. Especially when it comes from the screaming, sound effect guy. Believing that the gurus on TV actually have a good track record and are giving good advice, is folly with a capital “F.”
- They spend their investing lives in a futile attempt to disprove second grade arithmetic. They think 10 - 2 = 12, as in if the market earns 10% and they pay helpers 2% of that return, then they will get 12%. Anyone knows 10 - 2 = 8.
–Don Phillips, Managing Director, Morningstar, Inc.
"There has been no time in our financial history when implementing the simple investment plan in this book has been more important."
–Dan Solin, author of The Smartest Investment Book You'll Ever Read and The Smartest 401(k) Book You'll Ever Read
"Allan Roth shatters the Wall Street myth that investing is too complicated for ordinary investors. Using his son, Kevin, as an example, Allan shows us, in his easy-to-read writing style, how we can construct a simple personal portfolio that is almost certain to outperform the vast majority of investors. If you have been looking for an easy-to-understand book about how to invest successfully—this is it."
–Taylor Larimore, co-author of The Bogleheads' Guide to Investing
"Allan presents in a very clever way why a second grader can outperform most investors, professional and individual. He demonstrates both why smart investing is both simple and also why it is not easy for adults to execute because of behavioral mistakes to which they are prone."
–Larry Swedroe, author of Wise Investing Made Simple
"I have a very strong feeling that sometime in the not-too-distant future I will happily be working for Allan Roth's son! If you buy only one how-to book this year, this is the one! Allan Roth is a National Treasure."
–Mike Causey, senior correspondent, FederalNewsRadio.com
"Successful investing should be a matter of choice, not chance. Follow this book’s advice and your probabilities of success are 100% in your favor."
–Paul Merriman, author of Live It Up Without Outliving Your Money!, and publisher of FundAdvice.com
"Allan Roth gets an A+. It is no surprise that a second grader beats Wall Street, because everything we need to know about beating the pros is taught in the first grade. That is when we learn to add and subtract. And after subtracting the high fees and commissions that the pros charge, their results fall far short of a simple market return."
–Richard Ferri, CFA, investment advisor and author of The ETF Book
"Using just a bit of logic and a dash of arithmetic, Allan Roth lucidly explains why low-cost index funds should be the investment of choice for 2nd graders as well as their parents and grandparents."
–John Allen Paulos, mathematics professor at Temple University and author of Innumeracy and A Mathematician Plays the Stock Market
"Kevin, the second grader, is really smart and cool! He knows what it took me decades to learn. A smart strategy is to diversify broadly across US stocks, international stocks and high-grade US bonds using low-cost, tax-efficient index funds. He even taught me how individuals can increase their fixed-income returns without incurring higher risks. He will also teach you about asset location and the importance of saving in the most tax-advantaged savings vehicles, like a 401(k) and Roth IRA. By following Kevin's advice, we, too, can be smart investors. But we may never be as cool as Kevin!"
–William Reichenstein, Powers Chair in Investment Management at Baylor University
-Eric Schurenberg, former Managing Editor, Money magazine
- Publisher : Wiley; 1st edition (March 9, 2009)
- Language : English
- Hardcover : 288 pages
- ISBN-10 : 0470375949
- ISBN-13 : 978-0470375945
- Item Weight : 14.6 ounces
- Dimensions : 5.85 x 0.92 x 8.8 inches
- Best Sellers Rank: #1,200,293 in Books (See Top 100 in Books)
- Customer Reviews:
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Then, a few weeks ago, I picked up Allan Roth's book. Mr. Roth has a engaging writing style - this book tells the story of his son, who received some money from a relative, and how he used this gift to teach him lessons about building a solid portfolio.
In How a Second Grader Beats Wall Street, Mr. Roth walks us through those same lessons: finding solid but reliable returns through no load mutual funds, keeping an eye on taxes while investing and staying the course by not jumping in and out of investments. Keep it simple, he says.
And so, for the first time, I discovered a book that made sense to me. I finished this small guide and was able to develop a very simple outline of what I could do with my savings and retirement funds. I feel comfortable with my decisions and now know the steps I needed to take to get my funds in the right places. I will be putting that plan into place this upcoming week and look forward to "staying the course."
If you are someone who is tired of trying to interpret thousands of financial "experts" recommendations into a simple and effective plan for your money, whether you have $1000 to spare or $10,000, buy this book. I think you won't regret it.
After continuing my education a bit with other texts, I continue to be thankful for Roth, who explained everything so simply and clearly that I was able to grasp the basic concepts of investing, especially in regards to mutual funds, from the first page. His logic and reasoning made sense, and allowed me to start the conversation about financial planning with my family.
That being said, I don't recommend ENDING your education with the second grader book. In keeping everything simple, there are a lot of things that Roth wasn't able to add to the book - it wouldn't have been appropriate for this project! - so there's lots more to see and learn about.
To sum up - great start, clearly written, good basic rules and foundation for investing.
60% Total U.S. stock market index
30% international stock market index
10% Bond index
I also like the advanced 2nd grader portfolio:
54% Total US Stock market index
27% Total international stock index
10% Total Bond index
6% Total REIT index
3% Precious metals fund