Ten Best Investment Books

Education is a step toward financial success.

Where does one begin when trying to come up with the top ten investment books? Here is my list, but be forewarned, this is not a list of books that focus on either fundamental analysis of stocks, nor is it a list of books explaining technical analysis. In fact, the list below is the antithesis of stock picking. My list of the top ten investment books focus on index investing and a passive approach to portfolio management. When I use the term passive, I do not mean that in the tightest definition of that term.

 

Here is my recommended list.

  1. Four Pillars of Investing – William J. Bernstein
  2. Index Funds: The 12-Step Program for the Active Investors – Mark T. Hebner (Available online for free.)
  3. The Little Book of Common Sense Investing – John C. Bogle
  4. All About Asset Allocation – Richard A. Ferri
  5. The Intelligent Asset Allocator – William J. Bernstein
  6. The Power of Passive Investing* – Richard A. Ferri
  7. Asset Allocation – Roger C. Gibson
  8. What Wall Street Doesn’t Want You to Know – Larry E. Swedroe
  9. Unconventional Success – David F. Swensen
  10. The Investor's Manifesto – William J. Bernstein

It was not easy to pick which of Bogle’s books to recommend. His First 50 Years is definitely one to substitute for my number 3. In this blog post I replaced Rob Arnott’s book with Bernstein's third investment book, The Investor's Manifesto. Arnott's book advocates actively managed index funds and that philosophy runs counter to the investment strategy laid out in the other recommended books. I figure if you read the ten listed books, you can handle Arnott's book. There are several ways to read these books. 1) Read them from start to finish as one reads most books. This looks like a daunting task if one is going to commit to reading all ten. 2) An alternative approach is to have, say the first seven or eight on your book shelf and you pick themes to read. For example, you might check the index of each and read all about asset allocation or rebalancing. Use them as reference books. If you take this approach, I highly recommend you read Bernstein’s second book, “Four Pillars” from start to finish so you have a sound base from which to begin developing your portfolio plan and eventually a strategy for portfolio management and tracking.  Another excellent starter is The Investor's Manifesto.  It may be a little easier to read, so take that into consideration. Make the investment in a number of these books and it will reward you over the course of your investing life.

* Number six (6) is a new addition as of 12/8/2010.

The Golden Rule of Investing

The Golden Rule of Investing is simply, “Save as much as you can as early as you can.” The operative word is early. William J. Bernstein lays it out in stark language in his book, “The Investor’s Manifesto“ where he writes, “Each dollar you do not save at 25 will mean two inflation-adjusted dollars that you will need to save if you start at age 35, four if you begin at 45, and eight if you start at 55. In practice, if you lack substantial savings at 45, you are in serious trouble. Since a 25-year-old should be saving at least 10 percent of his or her salary, this means that a 45-year-old will need to save nearly half of his or her salary. Most 45-year-olds will find this nearly impossible, if for no other reason than the necessity of paying living expenses, payroll taxes, and income taxes.” 

Malkiel and Ellis devote the first chapter of their little book, “The Elements of Investing” to the subject of saving. M & E point out that one of the first steps in saving is to stop dissaving. This means one needs to begin to live below their income. Save instead of spend.

Stop burning up your retirement and kick the tobacco habit is one step. Whether it is smoking or chewing, both are harmful to your body health and financial health. Kick the habit of drinking bottled water. Why pay for water that is drawn out of the tap or from wells and sold in plastic bottles. Save the environment and build up your saving. Never, never, never incur credit card debt. This is the worst kind of debt and it will choke your financial health until you clean up the mess. These are some of the first steps in applying The Golden Rule of Investing. It is difficult to help anyone build and monitor a portfolio if they do not have the discipline to save.

Photograph: Northern Norway