Book reviews

Book Review: Smarter Investing

More and more people are going down the route of DIY investing and you may be thinking of doing the same.  But what do you invest in?  How should you structure your portfolio?  Should you try timing the market, buying low and selling high?  Or should you take the passive investing approach and buy the whole market?

Smarter Investing answers all these questions and is a must read book for those that want learn about investing and those that are responsible for moneys invested to meet their family’s future needs.  It is a book that I have come back to time and time again over the last few years, ever since I began investing my own money and building my own portfolio.

The author, Tim Hale, is very reputable with a career in advising wealthy people and advisory firms on investment strategy.  As he has heard directly from his clients what their thoughts are on investing, he is aware of common misconceptions held by the average investor and the common pitfalls of investing.  This puts him in a great position to understand his audience and has knowledge on how to avoid problems that every investor faces.

Tim Hale explains the basic concepts of investing that allows you to construct and manage an investment portfolio and that meets your individual circumstances.  He is clear that whatever portfolio you choose you cannot guarantee the performance of your investment, you can only do what you think will give you the greatest chance of achieving your goals.  I like his honestly and messages such as these make him credible as investing is an imperfect science and there are no guarantees.

Stock market

Investing can seem confusing and complicated, Smarter Investing helps simplify investing by providing a simple plan for avoiding common errors and provide practical tools to help you make your own decisions.  It covers debates such as the passive vs active investing and all arguments recommendations that are put forward are backed up by research.  The book accommodates for those who are only interested being provided with a step by step plan that they can put into action, you don’t need to understand the reasons and research that has gone into putting together a portfolio strategy.  However if you are in control of your and your family’s future finances then is it best to understand why your investment portfolio is structured in a certain way, and Smarter Investing goes into plenty of detail for each building block that will be in your portfolio.

Smarter Investing begins with eye opening facts, such as the average investor returned 4% per annum over 20 years up to 2010 whereas the stock market returned 10% per annum.  Individual investor returns are abysmal in comparison to returns if you had just invested in the whole market.  This is due to investments being driven by emotion and many end up buying high when there is confidence in the market and sell low when there is a loss of confidence.  I’m sure there will be at least one fact that surprises every reader.

Smarter Investing is not about is savings cash in current or savings account with your high street bank or building society.  It is not about timing the market, when to buy and sell shares.  It does not explain how to scrutinise company accounts and suggest buying shares in individual companies.  Tim Hale himself states that smarter investing is a dull process, the slow and steady approach to wealth.  He explains why it is near impossible to beat the market and why the best approach is to match the market.  Good investing is not about timing, it is about probability and playing the probabilities into your favour to give you the best chance of achieving your goals.  The toughest aspect for individual investors is not make decisions based on emotion, do not get carried away by what the papers and journalists are saying, there are daily market fluctuations that should be ignored, it is about having a long term outlook.

Savings

There is no one-size-fits-all approach as every investing has their own goals, different levels of risk and difference time frames of investing.  Smarter Investing includes many different examples that caters to a variety of risk levels so you have a choice how to structure your portfolio, which assets to include and what percentage of your portfolio different assets could cover.  The book goes on to explain how to diversify and what each asset class (e.g. bonds and equities including emerging markets) brings to the portfolio.  You’ll understand the role of each asset class in your portfolio and what risk it mitigates, such as inflation risk, global crisis etc.  Many people tend to have a home bias, Smarter Investing explains whether this is the best approach to take.  The more understanding and knowledge you have of each asset class and what they add to your portfolio, the better you can tweak your portfolio in order to give yourself the best chance of achieving your goals.

In order to help you select the best portfolio risk for you, Smarter Investing provides graphs with historical risk and return for each portfolio mix, you cannot tell the future from the past but the past can give you an indication of the level of risk you are taking on.  These graphs greatly helped me put into perspective the level of risk of different assets and made me realise that actually I am a much more cautious investor than I had originally thought.  I previously thought I had the right mind set to be able to ride out market down turns, but seeing the graphs and how much my investments could drop is a scary thought.  After reading this book I have opted for a more risk averse approach.

In conclusion, I would recommend Smarter Investing to anyone who is considering taking the DIY investing route.  There are a lot of things to consider when constructing your own portfolio and it is very useful to see examples of different portfolio mixes and the level of risk and return different portfolios can provide.  Smarter Investing provides sufficient information and enough knowledge for you to take an example portfolio and tweak it in order to provide you with a portfolio that best suits your needs.

Other posts you may like:
Book Review: Money: Know More, Make More, Give More
Book Review: The Money Tree: Money, how to make it, save it and grow it
Book Review: The Automatic Millionaire

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