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I finally finished The Bogleheads’ Guide to Investing. Just in time too, since I have to take it back to the library today :P In this book, the authors (self-proclaimed “Bogleheads”) outline the principles of John C. Bogle, founder and retired chairman of the Vanguard Group. It’s an awesome book for beginning investors who are just starting out and need some guidance on how to get their foot out the door (like me!). It would also be a useful tool for more experienced investors who have ‘led their financial ship astray’ and want to be guided to safer, more lucrative waters. And while not all the subjects will be pertinent to every investor (saving for child’s college fund, life insurance, managing  a windfall, planning an estate, etc), it is all still very interesting and provides a useful resource should the topic come up later.

The book is written in a conversational tone, so it makes it fairly easy to read. The authors offer friendly advice based on their collective years of experience and supplement their assertions with factual evidence and real-life examples.  They start out with the basics that everyone should focus on prior to investing a penny — getting out of debt, establishing an emergency fund, setting up a budget, determining your financial lifestyle. Then they walk you through all the different investing strategies: stocks, bonds, mutual funds, funds of funds, annuities, etc. They give advice on how to establish, track, and rebalance your portfolio. They explain how to keep costs in your portfolio to a minimum, by avoiding fees and reducing taxes. In fact, they write two fairly meaty chapters on taxes — great info for anyone looking to make their portfolio more tax efficient. The Bogleheads are HUGE proponents of index funds. If there is anything you should take away from this book, it’s invest primarily in index funds and diversify, diversify, diversify!

Off the top of my head, I can think of two random things that I learned that I bet most average people do not know.

1) If you are giving a savings bond to a child for their college education, do not list them as an owner or co-owner of the bond.  Instead, register the bond in one or both of the parent’s names and if you want, you can list the child as a benificiary. If the bond is not titled correctly, the bond will not qualify for the tax-free educational benefit. This is interesting, since so many well-meaning grandparents or family friends give children savings bonds and I bet many of them are unaware of this.

2) And this next one is a bit unsettling. If you are on life support with no hope of recovery during the year 2009, and you have a sizeable estate to leave behind, you may want to have it written in your living will that you would like to be kept on life support until 2010. This is because under current law, all estates will be tax free for the year 2010 only.  That is a HUGE savings — through 2009, estates will be taxed 45% and unless Congress extends the current estate tax law, estate taxes will go up to 55% in 2011. This information was fairly alarming to me — I guess it’s a difficult topic to think about in general, but also, couldn’t this lead to a rise in euthanasia or murders in the year 2010?!

Most of the chapters are quick and to the point. I did find that the writing styles were a little unharmonious at times. While I really liked the tone and writing style of one chapter, I would flip over to the next and go “Wait this isn’t by the same person.”  But this is probably a downfall to any book with multiple authors. Also, some topics are unnecessarily rehashed. Like I felt the chapter “Tune out the Noise” was an unneccessary redundancy that was covered in multiple chapters. I think I got the point — keep your emotions in check, don’t follow trends or invest in “highly rated” funds, don’t base your decisions on past performance, and don’t trust any old schmuck (aka advisor) with your hard-earned money.

JLP of All Financial Matters headed the Bogleheads’ October Project, where every day in October a different blogger reviewed a chapter of the book. If you want a brief summary of each chapter, head on over there and check it out. Some of the summaries are very well written, and do a good job of elaborating on the book. The biggest benefit of the Bogleheads’ October Project for me was the exposure to all the different Personal Finance bloggers. I must have spent hours surfing individual blogs after reading their chapter summaries.

3 Responses to “Review: The Bogleheads’ Guide to Investing”

  1. stardo says:

    giving savings bonds, regardless of the method used, is better than giving, say, nintendo wii or something else that will be useless in 10+ years, i don’t think anyone will argue with that one. better to set up a college fund or trust if you are saving for your children/grandchildren’s education, anyway. also, if you can get your child to have an earned income, you can contribute in their early years to their roth ira for them, which isn’t counted against them if they apply for financial aid.

    but that’s not why i’m posting. i read the following:

    “Like I felt the chapter “Tune out the Noise” was an unneccessary redundancy that was covered in multiple chapters. I think I got the point — keep your emotions in check, don’t follow trends or invest in “highly rated” funds, don’t base your decisions on past performance, and don’t trust any old schmuck (aka advisor) with your hard-earned money.”

    and couldn’t help but think to myself, isn’t not following trends, highly rated funds, financial advisors just the recent trend and therefore you are breaking your non-conformity by conforming with all the other non-conformists? =)

    that said, sounds like a good book. happy holidays.

  2. admin says:

    True, you can’t complain when someone gives you a savings bond. But it’s amazing how much money will be wasted on taxes if they’re not titled correctly. Just something to think about.

    And about your second statement — not really. By “trends” I was referring to hot stocks and bonds being touted in money magazines. Or the star ratings on morningstar.com for example. Things which average people read and go “wow, that looks like a good stock and it’s been doing well according to this article, I think I’ll add it to my portfolio.” This is of course basing future performance on past performance, which is a huge no-no that many people fall for. But anyway, to my point, index funds are not a trend. They are a safe investment vehicle that has proven the test of time — and the authors give plenty of evidence to back this up. So I think investing in index funds, avoiding high commissions and other maintenance fees, and choosing advisors wisely is just safe and practical money management, rather than a trend. Just my .02.

    Of course common sense comes into play here as well. It all “makes sense” but when it comes to money, people tend to follow their emotions.

  3. stardo says:

    yeah i won’t disagree with you that on the whole people are not able to outperform the market by picking and choosing stocks and getting in on the “right time” and therefore index funds, ones with low loads and admin costs are more than likely the way to go over long periods of time. that is not to say they are always the way to go, and not to say you will always make money with them. but i think we’re pretty much in agreement, i just wanted to poke fun. =)

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