Cabin Fever? Curl Up with a Good Finance Book

As the world hunkers down to weather the coronavirus, you find yourself in an alternate reality. Just weeks ago, you were busy working, volunteering, seeing friends, traveling, going out to restaurants and shows. Suddenly, you are confined to quarters, venturing out only for daily exercise and essential needs. You have unaccustomed time on your hands. You feel a certain sense of accomplishment from having binge-watched all twelve seasons of Red Dwarf, but what should you do next?

“You’ve …binge-watched all twelve seasons of Red Dwarf, but what should you do next?”

Here’s an idea: why not read some of those personal finance and retirement planning books you’ve been meaning to get to? Sure, there are lots of helpful blogs and web sites out there, but there’s something to be said for that old-fashioned literary form, the book. A book can delve deeper and sustain a narrative in a way that the Internet, with its short attention span, simply doesn’t allow. Below are reviews of some financial planning and investment books that I found worthwhile. Settle in with your favorite warm brew and enjoy!

Financial Planning for Retirement

Can I Retire? by Mike Piper. If you only have an hour or two to learn the essentials of retirement financial planning, this is the book for you. Mike Piper, who operates the Oblivious Investor web site, believes that the essentials of financial planning are straightforward, and aspires to convey these principles simply and concisely. In this book, I think he succeeds. He really does have a knack for conveying financial concepts in a clear, accessible way – albeit without a lot of history, background citations or colorful anecdotes, which some readers may miss. In 100 pages, he provides sound advice on how much money to save and how to manage that money in retirement. He covers the 4% Rule, and provides a friendly (but objective) treatment of annuities. He believes in a long-term, buy-and-hold investing strategy that emphasizes index funds and ETFs – an approach that helps to keep things simple that also happens to be good advice for individual investors. His tips on tax planning (both asset location and smart withdrawal strategies) are excellent. One criticism – he gives fairly short shrift to social security strategies for retirees, an important topic. (He’s written a whole separate book on the subject!) As a concise, stand-alone guide, or an easy-to-read introduction to more in-depth retirement planning books, I recommend this book.

How to Make Your Money Last, by Jane Bryant Quinn. Jane Bryant Quinn is (or was – unfortunately she retired recently) one of the country’s best known and most respected personal finance writers, with regular columns over many years in Newsweek, the Washington Post Writers’ Group, and AARP Magazine. This excellent book pulls together her retirement planning advice in a single volume. It is well written, balanced and complete, and provides very good advice on a range of subjects. She has a pleasant, readable style, and does a nice job explaining complex topics in plain English. (Perhaps she was an English major?) The book covers all the essential topics: budgeting/managing expenses, social security strategies, health insurance (a big expense for retirees), pensions and annuities, withdrawal strategies, investing in retirement, and tapping your home equity (via downsizing or a reverse mortgage). She includes references to lots of excellent resources, and her “spouse alerts” – advice on making sure that a surviving spouse is taken care of – are a nice touch.

A few nits: sometimes her thorough coverage of all the cases, bases and nuances on a topic can make you lose track of the key points. She can also be a bit too ecumenical when it would be helpful for her to take a sharper stand: she supports the 4% retirement withdrawal “rule” – as well as the 3 ½ , 4 ½, 5 ½, and 6 ½ % rules!

Despite these modest shortcomings, this is really an excellent planning guide. The book’s coverage is complete enough to serve as a reference, but is also a good enough narrative just to read through. Reading it is like talking to a long-time, trusted family adviser; it educates, soothes and inspires confidence. Highly recommended!

Money for Life, by Steve Vernon. I include this book in my list because it zeroes in on a key challenge for retirees – how to convert a stash of savings into a steady retirement income. Working people may have planned carefully and saved diligently for many years, only to arrive at the point of retiring without having really thought much about how to draw from their savings. (Mea culpa!)

“this book… zeroes in on a key challenge for retirees — how to convert a stash of savings into a steady retirement income”

Mr. Vernon, a financial planner and writer, describes how to take stock of your retirement income needs – expenses, less any income (pensions, social security) you have coming your way. To cover your remaining need, he clearly lays out the basic choices: systematic withdrawals (such as in the 4% withdrawal rule) vs. annuities. (Most people of normal means will dismiss fairly quickly his third option, living off dividends, as irrelevant.) The value of this book is its clear and unbiased description of the pros and cons of annuities and systematic withdrawals, including discussion of risk/reward, inflation risk and longevity risk (the danger of outliving your money). Unfortunately, there’s a fair amount of unnecessary jargon – e.g., “Win/Regret Analysis,” “Retirement Income Generators,” and “Five Step Planning System” — and the book becomes somewhat repetitive as it goes along. If you hang in there, there are some good chapters at the end on tax planning, investment risks/management, analysis of the 4% Rule (deterministic vs. historical vs. Monte Carlo), and explanations of some more complex annuity types. This shouldn’t be your main or only retirement planning book, but it’s worth reading for its strong points.

The Bogleheads Guide to Retirement Planning, edited by Taylor Larimore, et al. If you’d like to dig a little deeper into retirement financial planning, consider this book. The Bogleheads are devotees of the philosophy of the late Jack Bogle, who revolutionized personal investing by making low-cost index funds available to the average investor. The Bogleheads provide savvy, unbiased advice on all matters financial (check out their web site, the Bogleheads Forum).

“The Bogleheads are devotees of the philosophy of the late Jack Bogle, who revolutionized personal investing by making low-cost index funds available to the average investor.”

Some long-time members banded together to write this book on retirement planning. It provides sound, in-depth advice consistent with the Bogleheads investing philosophy – keep it simple, keep costs low, invest using broad index funds, diversify, and stay the course. This book covers the basic retirement planning process, different types of pensions and retirement accounts, investing before and during retirement, social security claiming strategies, and withdrawal/drawdown strategies. It also goes into topics often passed over in retirement planning books, including insurance/protection against disasters, estate planning, estate and gift taxes, and dealing with a divorce or other financial disaster. The book does have a couple of shortcomings. Since it was written by multiple authors, it reads like a compendium of articles and is somewhat lacking in narrative flow and focus. More importantly, it was written over ten years ago and apparently has not been updated. Readers should keep in mind that some of the information on taxes, socials security and IRAs is out of date. Despite these issues, most people will learn a lot from reading this book, and the advice it dispenses is generally excellent. Recommended.

Investing

Investing Made Simple, by Mike Piper. In this book, Mike Piper boils down the essential principles of investing into an easy read that you can finish in an hour or so. He subscribes to the Boglehead philosophy of investing in low-cost index funds, which allows him (and you, if you follow his advice) to keep it simple. He covers the different types of investments (stocks, bonds, mutual funds), accounts (IRAs, etc.), risk vs. return, and setting a goal using the 4% Rule. He makes the case for index funds or ETFs over individual stocks and actively managed funds and emphasizes tuning out the noise and staying the course. It’s pretty basic, but you won’t go wrong if you follow his advice.

The Little Book of Common Sense Investing, by John C. Bogle. This is a timeless gem by one of the giants of the investing world. In this book, you get to read the case for low-cost index funds by the guy who invented and popularized them, democratizing the world of investing. It’s like reading Darwin on evolution, or Einstein on the Theory of Relativity. The book has a fairly simple message: invest in low-cost index funds – “buy the market” — and your results will beat the vast majority of active money managers and investors. Perhaps unexpectedly to some, Bogle’s writing is literate, readable and even witty. The book is sprinkled with quotations from not only the likes of Warren Buffet and Peter Lynch, but also Sophocles and Tom Paine. His analysis of the investment world’s “helpers” – money managers, brokers, advisers – presented in parable form, is devastating. Their interests are not your interests, and trying to beat the market is, by and large, a fool’s game.

“The book is sprinkled with quotations from not only the likes of Warren Buffet and Peter Lynch, but also Sophocles and Tom Paine.”

Bogle smoothly assembles facts and figures, buttressed by experts and anecdotes, to make a very convincing case that you’re best off buying the market rather than trying to beat it. Listen to him – and read this book.

The Four Pillars of Investing, by William Bernstein. William Bernstein is an interesting character – he trained as a scientist and doctor, yet has become a well respected (if self-taught) expert on finance. His vigorous, entertaining style makes this book quite readable despite some challenging concepts. Bernstein organizes the world of investing into four “pillars”:

The theory of investing — the nature of stocks and bonds, the relationship between risk and return, stock valuation (it’s not magic – it should reflect future returns!), the difficulty of doing better than “average.”
The history of investing — an entertaining romp through some of financial history’s extreme events, from the South Sea bubble to the Crash of 1929 to the tech bubble – illustrating that the market periodically goes “barking mad,” and investors should be prepared.
The psychology of investing — explores the fascinating world of behavioral finance, illustrating that markets – or at least investors – are a lot less rational than they think.
The business of investing – in a no-holds-barred critique, Bernstein lays to rest any naïve belief that financial professionals are there to help us.

“financial history’s extreme events, from the South Sea bubble to the Crash of 1929 to the tech bubble – illustrate that the market periodically goes ‘barking mad'”

This book is full of insights into investing, and is a rollicking read. No coffee needed to stay awake.

Stocks for the Long Run, by Jeremy Siegel. Jeremy Siegel is a Finance Professor at the Wharton School, and a nationally recognized expert on finance and investing. This book provides a truly long-run (since 1802!) view of the performance of stocks as an investment vs. alternatives, such as bonds and gold. As you might guess, stocks win by a country mile. This book also explores, objectively and thoroughly, issues of concern to individual investors – how to think about stock value, value vs. growth stocks, tax and inflation impacts, global vs. domestic markets, volatility and periodic crashes, technical analysis, and several popular stock investing strategies (e.g., the Dow’s 10 highest yielding stocks). By the end, this love letter to stocks should have you convinced that stocks really are the best long-term investment.

Beating the Street, by Peter Lynch. Not everyone believes index investing is best. After all, index investing basically guarantees you an average return, and it must be possible to do better than average, right? Who better than Peter Lynch, one of the most successful stock pickers and money managers of recent times, to lay out the case for active money management? Someone has to be analyzing, buying and selling stocks for indexing to work for the rest of us. In this book (or one of his others, such as One Up on Wall Street), Lynch lays out his process for stock investing – analyzing a company’s prospects, determining fair value (good companies can still be too expensive), when to buy and sell.

“Someone has to be analyzing, buying and selling stocks for indexing to work for the rest of us.”

This is a very readable education on individual stock investing. You might even want to try it – with a small portion of your portfolio!

How to Retire Rich, by James O’Shaughnessy. James O’Shaughnessy is the opposite of Peter Lynch and most other active money managers; O’Shaughnessy advocates a factor-based approach to investing rather than doing extensive research on the underlying business. Using extensive historical return data, he presents the case that constructing a stock portfolio reflecting key factors, including quality (market capitalization, dividend yield, earnings growth record) and value (price/earnings, price/sales) measures, can deliver higher returns than the straight S&P 500. While his recommended approach would be cumbersome for the individual investor to implement, it’s a very readable introduction to the whole area of factor-based investing. Those who are intrigued can read O’Shaughnessy’s What Works on Wall Street, which is more in depth but somewhat heavier going. Interesting threads on the Bogleheads Forum on factor-based and small-cap value investing, as well as blogs/writing by Larry Swedroe and Paul Merriman, are more current, and recommend ways to layer factor-based investing onto a broad market index fund investing strategy.

Just for Fun

A Splendid Exchange: How Trade Shaped the World, by William Bernstein. This isn’t going to help you with your retirement planning or investing, but it’s a terrific read. In a sweeping economic history of the world, Bernstein shows how the world economy and civilization developed through trade. You’ll learn how the desire to trade what a society has for exotic goods from foreign lands has been a primary driver of world history — from the ancient river valleys of Sumer and the Indus, to overland trade across central Asia, to the Indian Ocean’s linkage of Asia and the Mediterranean, to Europe’s lust for the products of the tiny Spice Islands of the East Indies, and much more.

“trade has been a primary driver of world history — from the ancient river valleys of Sumer and the Indus, to overland trade across central Asia … to Europe’s lust for the products of the tiny Spice Islands…”

It’s a fascinating story, well told, with vivid characters and amazing-but-true narratives. Have fun!

That’s it — a small selection from the enormous literature on retirement planning and investing. I hope you find something here that intrigues, entertains and informs you.