From fadden Mon Aug 25 02:02:23 1997
Subject: Spam for Dummies
Date: Mon, 25 Aug 1997 02:02:23 -0700 (PDT)

The FAQ for the Usenet group "misc.invest", at http://invest-faq.com/,
recommends three books for people trying to sort out investing and
finances.  I went ahead and bought two of them:

- Andrew Tobias' _The Only Investment Guide You'll Ever Need_
	http://www.amazon.com/exec/obidos/ISBN=0156003376/

- Eric Tyson's _Personal Finance for Dummies_
	http://www.amazon.com/exec/obidos/ISBN=0764550136/

(Both are revised editions of older books; both were most recently
published in the first part of 1996.)

The "for Dummies" name is unfortunate, since it makes it sound like the
book is intended for dummies.  While it's certainly the case that dummies
can understand it, it would be a big mistake to think that only a dummy can
benefit from it.

To summarize briefly: _Personal Finance for Dummies_ contains every piece
of good advice my parents ever gave me about money, as well as some they
didn't, in a format that is accessible, entertaining, and never
condescending.  It should be mandatory reading for the entire human race.
This book rules.

The book does give specific advice about where to invest your money, but
that's only one of four large sections.  The focus of the book is on
planning for your future in a way that will leave you comfortable at
retirement without feeling like you've passed up opportunites to have fun.

I already knew all the usual stuff: pay off your credit cards, save 5-10%
of your income, invest in no-load mutual founds; the usual things that
every radio show advisor will tell you.  I knew what stocks and bonds were,
and the concept of 8-10% returns compounding over 40 years isn't new.
Here's a few things I didn't know (and I suspect I'm not alone):

  - Market-timing newsletters -- the ones that tell you to switch in and out
    of various stocks in an attempt to beat the market -- suck.  Most don't
    beat the market, and if you adjust for risk, NONE of them have beaten
    the market over a 15-year period.  You are better off throwing darts
    (or investing in index funds, several of which are listed).
  - I Didn't Know Jack: Insurance.  I didn't know anything about life
    insurance, which hasn't been a problem since I don't need any just
    now.  But if the book is even half-right, few insurance agents would
    educate me about the right choice (term life) instead of what they get
    huge commissions on (cash-value life).  I also realized that my auto
    and renters insurance deductables were too low, and I had coverage I
    didn't need.  Sure enough: the savings here more than paid for the book
    with the next 6-month premium.
  - Home loans.  This covers the trade-offs between buying and renting,
    between selling a house you're moving out of and keeping it while
    renting it out, and explains the different kinds of home loans.
    Including things you won't hear from bankers, like loans with no points
    will usually have higher interest rates... which may not be a bad thing
    if you're only planning to keep it for a short while.  The book
    explains the terms and what to look for.
  - Car loans.  Car loans are bad, home loans are okay, no loans are best.
    Cars depreciate, homes appreciate, and home loan interest is
    tax-deductable.  I'd thought about doing a car loan once upon a time
    instead of paying cash, because the loan interest rate might be less
    than I could make in the stock market... but you have to remember to
    compare the market returns *after tax* to the car loan interest rate.
  - Options trading.  Stocks and bonds are investing; options, futures, and
    commodities are gambling.  As in Vegas, the odds are with the house:
    the only people who regularly win are the house (i.e. the brokers
    getting the hefty commissions) and the guys counting cards.
  - College funds for kids.  Here's an unexpected piece of advice: don't
    divert money from a 401(k) to a custodial account in your child's name
    if you're expecting to need financial aid for college.  Why?  The money
    in the 401(k) doesn't count as an asset when applying for financial
    aid.  This doesn't mean don't *create* a custodial account -- you still
    get tax breaks -- just don't *divert* money from the retirement
    account, because your money doesn't go as far (it's after-tax) and it
    makes it harder to qualify for grants and the best loans.  Besides,
    you're not doing your kids any favors if you have to leech off of them
    later in life.
  - Getting credit and MIB reports.  I found http://www.equifax.com/ just
    recently, and this book has the 800 numbers for TRW and MIB.  (The
    latter is the Medical Information Bureau, which the health insurers use
    at to see how messed up you are.)
  - Most "financial planners" are slime.  Invest your own money.  Some
    places charge a small percentage of your account per year (like 3%),
    with the idea that they're earning you at least that much more.  Buy
    some darts, you'll probably do better.  Throughout the book, Tyson
    points out the conflict of interest that most people you will deal with
    have (your best interests vs. their best commissions from a sale), and
    offers suggestions on how to avoid the worst of them.
  - Whether or not to invest in tax-free bonds or mutual funds depends on
    your tax bracket.  In retrospect, this is obvious, but I hadn't
    really thought about it.
  - If you have several mutual funds, some inside an IRA and some not,
    the ones to put in your IRA are the ones with the highest "churn"
    rate, and hence the highest capital gains.  Obvious?  Yes.  Had I
    thought about it before?  No.
  - If you're saving up to buy a house in the next couple of years, don't
    put the money in the stock market.  If the market goes down, you
    won't be able to buy the house.  Invest in stocks with money that you
    don't plan to use for several years at least.  The market has shown
    gains for every 15-year period in this century, but if you don't have
    15 years to wait, put it somewhere else.

The same author has done separate "for Dummies" books on investing, mutual
funds, taxes, and home buying.  The 400-page Personal Finance book does
cover each of these, but with a more holistic view, taking all aspects of
your life into account.  (It even mentions three low-risk, high-return
investments you can make: your health, friends & family, and personal and
career development.)

The ultimate goal of the book is to show you how to take control of your
life.  My life was pretty much in control already, and I still found things
that were either blank spots in my knowledge, or pieces of advice that
reinforced what I've been told in the past but didn't entirely believe.

The book by Tobias has much of the same advice, but reading it is less like
listening to a finance counselor and more like listening to Andrew Tobias
prattle on about things at semi-random.  He's interesting, and gives
anecdotal evidence to support some of the investment stuff: Tyson says
"stay away from options, most people lose"; Tobias gives an example of an
options trader with many clients, none of whom have made a significant
amount of money *over the long term*, including the trader himself.  If you
need to be convinced that anything more complicated than a mutual fund
should be avoided without *significant* research on your part, read Tobias'
book after you read the _for Dummies_ guide.

I'm sending this spam because not everyone has parents who distilled the
wisdom of various investment experts for them, and not all of us who did
believed everything we heard.  Besides, I'm still giddy from learning about
life insurance (which goes to show how utterly dull I really am... but
hey, it's the little things in life).  If you already know everything there
is to know -- or are past the point where it will do any good -- this book
might not help you, but you probably know a few people who would benefit
greatly from it.

- Andy