Book Review: The Smartest Investment Book You’ll Ever Read

I was recently sent Daniel Solin’s new book The Smartest Investment Book You’ll Ever Read for review. I enjoyed the book and it only took me a few hours to get through. The layout and presentation of material is excellent. In terms of the content, I have mixed feelings. Solin takes a big swing at the brokerage and product-based financial advising businesses. He especially enjoys exposing how they make money- a similar theme to his first book Does Your Broker Owe You Money?

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The Truth Behind “Fee-Structured” Financial Planning

I’m writing this post because of an e-mail response I got from my friend JLP over at allthingsfinancialblog.com. First, let me point out that JLP runs an excellent blog- one of my favorites. I sent him an e-mail recently because he has a section on his site which links to others financial planners, specifically those who write blogs. I figured it would be appropriate to get a link on his site, being as how I’m a financial planner, a fellow blogger, and have a book coming out this summer with Wiley & Sons which features JLP along with about 70 other bloggers. But JLP asked me the ultimate question- a question which earns so much publicity that I could talk about it in my sleep- a question so great that it transcends time: do I earn commissions? Hesitantly, I explained that, while I’m predominately a fee-based advisor, my firm, as a comprehensive wealth manager, does earn commissions. I think I got a bit defensive and went on to explain in my e-mail some of the pro-bono work that my firm does. This morning when I sat down to write a post, it occurred to me that not every advisor who earns a commission needs to apologize for doing business this way. More importantly, I don’t think the average consumer truly understands what it means to be a fee-only financial advisor. Some advisors are touting their fee-based model of doing business when a commission could actually save their clients money. Allow me to disseminate the truth about this situation once and for all.

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Solving the Social Security Problem in America

Social Security is a federal program which provides retirement and disability income to workers through the collection of Social Security taxes. Every worker in the United States is responsible for paying these taxes during their working years and entitled to receiving benefit checks when they are eligible for retirement. That fact alone should make you at least a little bit curious about what all the recent chatter is about. The program is on its way to financial trouble because not enough workers exist to provide adequate benefits to the rapidly aging population. The most perplexing aspect of the Social Security problem is that the people who are most concerned about it really aren’t the same people who will likely be most affected by it. For example, I’m the youngest financial advisor at my firm and stand to lose the most from an underfunded Social Security system. At the same time, I not only talk about it less than my co-workers, but I don’t lose sleep over it either. That’s not to say I’m unaware that 12.4% of my paycheck goes towards these taxes, I’m just too far from receiving benefits to worry about it. Perhaps part of that irresponsible logic stems from how the system is organized. Rather than each taxpayer’s Social Security dollars getting earmarked for their own retirement, they get paid into a common pool of money allocated by the federal government. It’s a controversial system because workers currently in their 20’s and 30’s may not ever see the money they’ve paid in. It’s also impractical because of the baby boomer generation. Millions of people will soon be applying for benefits and the program needs some sort of reform if it wants to remain financially solvent. The irony of this problem is that Social Security was set up in part as a reaction to the Great Depression. Its inherent purpose was to provide a safe and stable income during retirement. When the Federal Insurance Contribution Act (FICA) was passed in 1937, the payroll tax needed to fund the system was only 2%, not a bad deal for a promise of secure income during retirement. Needless to say, that payroll tax has increased gradually up to its current 12.4% level. Some politicians may finally be realizing that raising taxes isn’t necessarily the solution. It’s more than questionable what the affects would be of raising FICA taxes another few percentage points. Some believe that would infuriate many hard working people, and potentially risk a shake-up in the economy. It seems to me that the system makes less sense each and every year it continues. So, what are we to do about all this? Keep in mind throughout this discussion that eliminating the Social Security system along with the taxes that fund it is not an option currently on the table. The government understands that they need to, at least in the short run, implement a uniform program which provides some form of income to older Americans.

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The Down and Dirty on Credit Cards

Americans tend to have mixed feelings about credit cards. They appreciate having easy access to funds, but largely resent the tendency created by credit cards to overspend. Credit Card issuers pollute the problem by pushing the use of credit on consumers and tangling a web of fees and interest charges along the way. However, having access to credit is an extremely important part of today’s financial world and helps to validate the consumer. It allows one to conveniently buy things located anywhere, and creates the ability to make reservations for services such as car rentals, hotels and restaurants. I would say that credit cards are already an item of necessity rather than luxury. It’s difficult to make it through a year as an active person without having some sort of access to credit. The convenient record-keeping and surveillance aspects of using credit over cash have made it an appealing choice for consumers and vendors alike. As this dependence on credit cards continues to spread, it’s important that one understand the benefits and drawbacks to credit cards, why they cost consumers so much money, and how one can avoid falling into credit card traps.

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Are you Ready to Pick your own Stocks?

There comes a point in many investor’s lives when they decide to dabble in the stock market. I consider this to be a turning point in the life of an investor, a coming of age in which one graduates from a passive strategy and demands more control over their investments. Some people return to managed investments shortly after trying their hand at stocks because of a bad experience, while others have success and maintain permanent involvement with their investment decisions. Besides the potential for profitability, researching your own stocks has derivative benefits as well. First, your understanding of individual corporations and the economy in general will likely improve. Also, your journey into stocks may inspire a curiosity about other areas of the investment arena such as bonds and real estate. I remember back in college when I first took an interest in the stock market. I dedicated a chunk of my spare time to examining financial statements, listening to quarterly earnings reports and researching executives to find out who’s who. On the topic of research, it should be noted that the Google finance portal launched in early 2006 and is a must see for new investors. While many loyalists still prefer the Yahoo portal, Google Finance has truly unique features such as interactive charting and a search tool specifically designed to navigate the blogosphere. I remember when the market dabbling phase happened in my own family many years ago. My father installed a satellite dish on the roof of his dental office to give him improved access to stock quotes. Each time his stocks went up the computer would make a sound like a cash register. Each time they moved down you’d hear something of a train wreck. Ah yes, those were the days of dabbling. So, how should you go about picking stocks?

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Book Review: The Little Book of Value Investing

I’ve recently finished reading The Little Book of Value Investing by Christopher H. Browne. It was an excellent follow-up to The Little Book that Beats the Market.” For those who are unfamiliar with these books, they are part of a relatively new series from Wiley called “Little Book Big Profits.” The series features industry icons who share their investing philosophies through short and approachable chapters. So far, the two books which I’ve read both take on a value approach to investing. However, the authors use different styles and priorities when it comes to locating stocks. I’m looking forward to the next book in the series as well, “The Little Book of Indexing” which will be written by John Bogle and hopefully released soon.

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