From Wikimedia Commons
As my New Year’s Resolution I’ve decided to find out everything I can about money and finances. Because this is my aim, I’ve been reading books and web sites trying to get a grasp of all things financial. A week ago I checked out a couple books as recommended by the fantastic website “The Simple Dollar”. What I say in this post in no way reflects my view of The Simple Dollar, but only reflects my view of The Lazy Person’s Guide to Investing.
I think it is very important, especially when you write a book on a particular subject, that you be professional in your approach. I do not mean that you cannot have fun - I like good wit and humor. However, if you give advice one way, or quote a fact, you cannot turn and go against it on the next page. I admit, I did not read the book in its entirety. Moreover, I didn’t read more than 20 pages. I skimmed a quarter of the book, but my actual reading stopped on page 12.
On page 10Paul B. Farrell recommends the “big secret to creating a couch potato portfolio.” He essentially asks for a 50-50 asset allocation in two funds: 1) Vanguard 500 Index (VFINX) and 2) Vanguard Total Bond Market Index Fund (VBMFX). He then states that the one drawback to this approach is the $6000 dollars you need up front because each of these funds require a minimum $3000 initial investment.
I have no problem with that advice. One of the ideas he’s trying to get through is that you can’t beat the market, so why try. I would say, it’s very hard to beat the market, so most shouldn’t try. For most it would be a better idea to just sit on the sidelines with a portfolio like the one above, which will basically follow the market at a low expense ration (which we always like).
The next fund he talks about on the bottom of page 11 and into page 12 is the “Sophisticated Couch Potato Portfolio.” I love the name and the irony, however this is where I have the problem. Again, it’s not in the actual choice of the portfolio that I have a problem. This portfolio is made up of the same two funds except the split is 75-25 asset allocation favoring the stock fund. I don’t even have a problem with the split (I would probably be more prone to do this split than the one above in fact). The problem I have is in this next bit: “…That means if you have $10,000 cash to start, you put $7,500 in the stock fund and $2,500 in the bond fund.”
So I’m going to take advice from an “expert” who can’t do arithmetic, or can’t fact check? He just said you have to have a minimum of $3,000 to invest in either fund, but now he’s saying you should be able to get in at $2,500. Not factually correct. To be a “sophisticated” couch potato you’d also be required to make double the investment at $9000-$3000 to achieve the 75-25 split mentioned above. Which is fine, it’s just $2000 more than his example gave. However, I feel, and especially if you’re giving advice to the lay investor with no experience (and frankly little to no desire if they’re a true couch potato), that you should get your numbers right if you’re setting yourself up as an expert.
So once I read that I didn’t really read much more. I flipped through the book. I don’t think it’s a total dud, but I can’t recommend it after such a flaw in thinking on page 10-11. I guess this book isn’t for me.
