Book Club: The Smartest Investment Book You Will Ever Read by Daniel Solin
Updated: Jul 15
The Smartest Investment Book You Will Ever Read
Book Review Score: 8/10
Category: Finance, Investing
Becoming a smart investor will change your financial future forever. This book provides a lot of actionable resources on becoming a smart investor. I did not know a lot about the stock market or investing before reading this, I am now confident I have a good system for investing my money.
The majority of this book is about passive vs active asset management. The author claims that active managers think they can beat the market by ‘Stock Picking’ - choosing stocks that outperform the market. Or by ‘Market Timing’ - forecasting if the market is at a peak or valley and profiting from it.
There is no evidence to suggest that they beat the market. Some do, but only through statistical chance. Smart investors do not engage in stock picking or market timing. No one can time the market and no one can consistently beat the market. Throughout the book, Solin provides a large number of case studies showing how little active management actually wins.
ETF is a mutual fund that trades on the organized stock exchange, they are made to replicate returns of a particular index, like the S&P500 index. The Smartest Investment book proves that the Vanguard model portfolio funds - will beat 95% of hyperactive managers.
When investing in Vanguard funds, you choose from low-risk to high-risk funds. Take your pick, it all depends on your risk adversity.
The Smart Investment Process
1. Calculate your Asset Allocation
=110-(your age) = Portion of allocation in Stocks
The author suggests allocating enough cash to equate to 6 months to a year of living costs.
2. Open Account with any Fund Families - Invest in ETF or Index Fund
Find a fund family with an S&P500 index fund and small stock index fund. You can see a list of fund families in chapter 38. Fidelity Investments, T Rowe Price, and Vanguard are the most dominant fund families.
e.g. Charles Schwab co. or Gartmore Fund.
3. Select your Investments
Investors should invest in the entire market. In their entirety, stocks and bond markets always go up over time. Of your total equities, invest 70% in domestic Stock Funds and 30% in international Stock Funds.
4. Rebalance your Portfolio
The book suggests rebalancing your portfolio approximately two times per year. They offer two ways of doing this:
If you have money to invest, you may buy shares in the areas you need to.
If you have no money to invest, you must sell some of your current shares to rebalance.
The book uses standard deviation to gauge risk assessment.
Example using 2005 S&P500 as a guide:
Conservative investors should invest if the standard deviation is no higher than 8%
Moderately aggressive standard deviation is no higher than 15%
Very aggressive standard deviation is no higher than 20%
No one should have a standard deviation of over 30%
Proper asset allocation should be your main goal if you want to become a smart investor. Your
Investment Asset Allocation should have some Stocks, Bonds, and Cash.
Stocks generally return more than bonds but there are periods where bonds match stock returns.
Bonds are essential for your portfolio as they are uncorrelated to stocks. You significantly minimize risk when investing in classes that do not correlate.
Move out of bonds when stock markets rising, move in when stocks markets fall.
Read other reviews and details, or purchase the book here.
Rather listen to it? get it for FREE on Audiobooks.