Wednesday, June 4, 2014

Book Review: The Elements of Investing (Updated Edition)

Hey all!

Hope everyone is doing great today! Gorgeous weather here in NYC!

The other day while browsing my local library's personal finance section I came across this gem:

The book seemed pretty practical and small enough to be a quick, informational read- so I grabbed it and ran with it. I finished the book yesterday while on the train and decided to provide a quick review on it. So, here you have it:

My overall review of it is that is a wonderful book with a lot of great information from how to get started with investing all the way with super specific and practical tips on where to put your money (ticker symbols and all!). I love books that get away from simply emphasizing the theory and actually provide practicality!

The book makes a great emphasis on the fact that the most effective way for an individual investor to get rich is by doing it s slowly and investing in index funds. The thought process behind that strong suggestion (I say 'strong' because its emphasized several times throughout the book) is the fact that index funds provide enough diversification so that no matter what happens in the market, your money is safer and more profitable in the long term as oppose to having the majority of your money invested solely on individual stocks.

On a personal level, the book allowed me to educate myself further on other forms of investing rather than concentrating all my money in equities. I have to be honest that I have never invested on index funds, ETFs, or mutual funds. It is something I have thought about a lot but have not acted on it as of yet. Most of my investing is done in individual companies while keeping in mind the importance of diversification. Hence, I approach this by making sure my money is allocated within different industries.

Other great tips I learned about (or was reminded of) include but are not limited to the following:

1. The different tax advantages that come with investing in government bonds and instruments of the sort as oppose to individual equities.

2. The "controversial" idea of selling losers rather than winners-- I thought this was quite interesting yet something to definitely consider as they make a great point. The book reminds us that selling losers provides us with tax breaks while selling winners adds to our income opening up the possibility of paying more taxes.

3. Rebalancing our portfolios about once a year--- this is to be done with the purpose of allowing us to collect some gains from "winner" investments and also to make sure we don't have too much of our money allocated in one single stock/investment (bringing us back to a 'balanced & diversified portfolio').

4. The amazing power of DRIPS also known as Direct Reinvestment Plans. DRIPs allow you to increase your position in a company/investment without any action on your part. Hence, making it an "get rich automatically machine". Check out this article for a quick overview of what a drip  is.

5. The idea that no one can time the market, hence, techniques such as dollar cost averaging can be very effective in making sure we get investments in our portfolio at various prices; not too high and not too low.

6. The importance of saving and living below our means. Saving is actually the very first chapter of the book and I could not agree more! As a saying I heard recently says "save to invest rather than save to spend!"

...and so much more!

I would say my favorite chapter is chapter V: Keep it simple. Here, the authors elaborate on the idea that investing should be simple. Doesn't have to be complicated in any way and encourages this methodology: KISS- Keep It Simple, Sweetheart.

I encourage you to get the book or borrow it from your local library. I think that both, new and experienced investors alike, can find a good amount of sound and valuable information in his book.
Next steps for me? I plan to do some research on some of the specific recommendations provided in the book. I will share some feedback and let you guys know if I end up investing in any of the recommended funds.

...Remember this my friends:

Tell me, Have you read this book before? what are your thoughts? any books you would recommend?

As always, wishing LOTs of profits,