I first picked up a ragged old copy of this book at a used book sale, but since then it keeps popping up over and over again. This week, I’ll review chapter by chapter the latest revision of this personal finance classic (it was first printed in 1978, which means it’s had a much longer lifespan than many personal finance and investment books) and find out whether it’s worth picking up or not.
Chapter 1: If I’m So Smart, How Come This Book Won’t Make You Rich?
The opener is merely a series of humorous money anecdotes that basically focus on the idea that it’s almost impossible to “get rich quick,” and following the investment fad of the month is pretty much a sure way to lose your pants. It’s quite humorous (if not informative) and serves as a good introduction to the humor and tone of the book.
Chapter 2: A Penny Saved Is Two Pennies Earned
starts off (in earnest) in the best way that an investment book can, in my opinion: looking squarely at the investor. It makes the very astute point that the best investment you can make is learning how to live with fewer expenses, whether it’s actually buying less stuff, buying cheaper things, or simply maximizing your effectiveness at getting deals. Every time you optimize your spending, it’s basically a very effective investment. The chapter spends twenty pages or so listing effective frugal ideas, both simple and challenging, and concludes astutely that these should be the foundation of any investment strategy.
Chapter 3: You CAN Get By On $165,000 A Year
Uh-oh. This chapter includes the nearly-required “nine step plan for financial freedom” that almost every book on personal finance includes in some form or another. Nine seems to be the magic number for personal finance books, as it pops up again and again and again. Here are Tobias’ nine steps:
1. Tally your net worth.
2. Set goals.
3. Figure your annual earnings.
4. Take a first pass at your expenses.
5. Take a second pass at your expenses.
6. Refine your plan.
7. Blow $5 on a budget book.
8. Keep track of what you spend – or use an altogether different system.
9. Give yourself a break.
Chapter 4: Trust No One
Basically, this chapter makes one point, but it’s an important one: never trust a salesman. Do your own research before you dive into an investment or insurance, because salespeople are, well, driven to sell above all. If someone is trying to get you to buy an investment you don’t know about, say “no” and do your own research if you happen to be interested.
Chapter 5: The Case for Cowardice
This entire chapter focuses on the benefits (and diverse options) of buying bonds: they’re very safe and they’re a good place to put your money if you don’t have a taste for risk or volatility. Plus, on years where the stock market goes down, you look like a genius. Here’s another way to look at it: if you have $100 and you buy stocks that go up 15% the first year and down 8% the next (not entirely unusual), you end up with $105.80. However, if you buy a two year bond set at 5%, you finish with $110.25.
Chapter 6: Tax Strategies
After tons of pages of specific advice on how to do your taxes and make investments that shield your money from taxes, the last paragraph basically says “buy TurboTax and do your taxes on your computer.” Here’s the advice in a nutshell: if an investment can shield you from taxes, you can accept a lower rate of return with it and wind up ahead.
Tomorrow, we’ll keep digging into this book.
The Only Investment Guide You’ll Ever Need is the twentieth of fifty-two books in Money360’s series 52 Personal Finance Books in 52 Weeks.