Managing Your Own Investments, Part 1

“Tens of millions of investors need personal guidance; other tens of millions do not.” -
Jack Bogle.

In my last post, I recommended what I consider to be two very helpful books for those investors who have decided that they want to engage a financial planner to manage their investments. Reading either or both of these books before you have your first consultation with the prospective advisor, will provide you with a checklist of the right questions to ask him or her.

The knowledge you will gain will also arm you against misleading claims some advisors may make; for example, that the funds they recommend “outperform” the market. There is no evidence that anyone can consistently “beat the market.”

Suppose that, after realistic introspection, you have decided that you definitely want to manage your own investments. Perhaps you do not want to give up the control to someone else. Or you are convinced that you can do a better job yourself. If that is indeed the case I suggest that you start by educating yourself. To that end, let me suggest several books that will help you become your own investment advisor.

Obviously, I won’t waste your time suggesting any book that purports to have a strategy to consistently outperform the market or promises to avoid losses, and you should be very skeptical of any such claims.

Here are three books that are a very good place to start.

The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William J. Bernstein

The Only Guide to a Winning Investment Strategy You’ll Ever Need: The Way Smart Money Preserves Wealth Today by Larry E. Swedroe

Live It Up Without Outliving Your Money! – Getting the Most From Your Investments in Retirement by Paul Merriman

These books all reach similar conclusions, primarily about the need for diversification and risk management, though they obviously present their authors’ differing perspectives. To some extent, these are overlapping, but all are useful. If I had to choose just one book, it would be Bernstein’s. It covers the Theory of Investing, the History of Investing, the Psychology of Investing and the Business of Investing; all-in-all, a well-rounded, intelligent read.

Some Cautionary Notes

Keep in mind that designing a portfolio is just the beginning. You will still need to implement your investment plan and to monitor it regularly. And you will need to keep up with changes in tax policy as it affects your investments.

Often, the most difficult aspect of being your own investment manager is the psychological part – namely, sticking with your plan. It’s too easy to second guess yourself, and you will not have a behavioral “coach” to help you avoid big (i.e. costly) mistakes.

Nevertheless, taking the time to read these books will not go to waste. As my wise mother used to say, “Knowledge is a light burden.”