Alan S. Roth, “How A Second Grader Beats Wall Street”, Wiley (2009) 245 pp.

Allan Roth runs a firm called Wealth Logic, LLC where he helps individual investors develop and maintain a “dull” portfolio.  His basic investing philosophy (which I happen to agree with) is that good investing is boring investing: investing can be very simple.  In fact, that is the premise of this book, appropriately entitled “How a Second Grader Beats Wall Street.”  In this book, he uses his then 7 year old son to explain basic principles of investing and emphasizes why adults often fail at the really quite simple task of developing and maintaining a sound portfolio.

Despite the title, it really isn’t aimed at a second grade audience.  Mr. Roth teaches that you would be a better investor if you would rid yourself of the “sins” of adult-style investing, including performance chasing, watching the market too closely, investing in promises that are too good to be true, and overcomplicating your portfolio. 

  Allan proceeds to go through the problems with cash-value life insurance, investment newsletters, investment education seminars and software, hedge funds, gurus, and mortgage maximization schemes. 

In summary, Allan’s book is a worthwhile addition to your library.  Continuing finance education needs to be done occasionally.  This is a very readable and entertaining book.

My Notes:

Pg. xxi:  The Second Grader Simple Portfolio (beats 90% of stock professional advisors):

VTSMX  Vanguard Total Stock Market Index Fund……………………60%

VGTSX Vanguard Total International Stock Index Fund…………….30%

VBMFX  Vanguard Total Bond Market Index Fund…………………….10%

Note: this is an 8 year olds’ allocation; Allocations vary by tolerance for risk, age, and need but the portfolio fund composition is the same.  With these three funds, you can virtually own the entire global equity market and the U.S. investment-grade bond market.

Pg. 6:  The author has found that clients can reach their financial goals by a year sooner for every 0.25 percent they can lower expenses in their portfolio.  As Vanguard fund expense are approximately 0.2% and professional advisor managed fund expenses are 2.0%, the client saves 1.8% on expenses.

Pg. 7:  According to Morningstar, the Vanguard Total U.S. Stock Market Index Fund (VTSMX) has bested 77 percent of its peers over the past five years.  The Vanguard Total International Index Fund (VGTSX) bested 86 percent of its peers. 

Pg. 27:  It matters less whether you own an index mutual fund or an index ETF.  What does matter is that you must own the entire market in one simple index fund that provides the:

*Highest level of diversification

*Lowest costs

*Highest tax-efficiency