The 3 Simple Rules of Investing: Why Everything You've Heard About Investing Is Wrong—and What to Do Instead

by Michael Edesess, Kwok L. Tsui, Carol Fabbri

Don’t believe the Tips from financial professionals on recognizing and avoiding overpriced, overcomplicated, and overly risky investments.   What if the most effective investment portfolio was also the easiest to manage and the least expensive? As the authors of this clear, practical, and enlightening book—part financial guide, part exposé—prove, there are just three simple rules you need to follow and only a few, very inexpensive investment products that are necessary for an ideal portfolio.    The authors deftly bust investing’s myths—what they call investing’s Seven Deadly Temptations—and dispense with all the complicated, confusing, and self-serving advice of the Wall Street wolves. By embracing commonsense solutions and rejecting investments that seem enticing but are overpriced, needlessly complex, and risky, you’ll put not only yourself in a stronger position, but the entire economy as well

Genres: Nonfiction, Finance

265 pages, Kindle Edition

First published June 16, 2014

Reviews

[Justus · Rating 3 out of 5]

Maybe I've read too many beginner investing books or maybe I just went into this with expectations that were too high -- though the title certainly isn't doing itself any favors. I think I was expecting the sections on say, not rebalancing a portfolio to be meatier.

Overall this was....fine. The advice isn't really that different than you'll find many other books that advocate index investing. It does some things better and some things worse, so it makes it hard to recommend it above a crowded field.

The three simple rules are...well...simple. "#1 Simplify Your Options" which recommends a combination of government inflation-protected bonds, low-cost domestic equity index fund, low-cost international equity fund, low-cost term life insurance, and single-premium income annuities. The discussion of insurance & annuities (brief, though it is) is one thing that alternative books rarely cover. That's all you need to know about: just five things.

"#2 Look Only Forward". Which is just a reiteration of "past results are no guarantee of future performance" along with a discussion of survivor bias. "Don't waste time poring over investments' historical performance" is the main message of the chapter.

"#3 Tune Out Noise". Basically ignore everything else you hear about investing. Don't follow the news. Heard something about gold as a hedge against hyperinflation? Tune it out. Heard that you can reduce risk by using a target date fund with a glide path? Tune it out.

This is all fine enough and I have no real disagreement with any of it. But, again, it isn't exactly groundbreaking and the arguments they put forth aren't especially deep or well developed. Indeed, all of that takes up only about one-quarter of this very slim book; maybe 50 pages.

The rest of the book is devoted to "investing's 7 deadly temptations", which most expound on the "tune out noise" theme. Heard about mean-variance optimization and Modern Portfolio Theory? Deadly temptation #3. Tune it out.

One of the good themes running throughout the book is don't stress about this stuff so much. Don't try to precisely calibrate your portfolio. Don't try to precisely hedge or diversify. There's no precision in any of this, so just relax. I think that's a good message for investors. But I'm not sure it is enough to justify reading this book if you've already read some other beginner index investing book.

[Terry Koressel · Rating 3 out of 5]

A good read, but not over-the-top excellent in my opinion. The authors are all experienced investment professionals. They are extremely knowledgeable. And they have STRONG opinions about the fact that nearly the entire financial industry is "stealing" investors money....and getting rich doing so. How? By charging high, often hidden fees for marginally beneficial advice. The authors do offer excellent advice on creating your own low cost, simple portfolio that will outperform most portfolio strategies designed by financial advisory firms or individuals. A good book for the novice. If you are a seasoned investor doing your own investing, the advice is less valuable. That is why I rated the book as average.

[James Kee · Rating 4 out of 5]

useful advice

Even though the data is somewhat old, the advice and conclusions seemed on target. I would have liked to have seen more on real estate or other inflation alternatives. However the basic prescription of a mix of inflation indexed bonds and a low cost total market mutual fund.

[Jacob ABC · Rating 3 out of 5]

The rules facilitate the screening process. The book's formula is interesting because it allow a better understanding of the 3 rules.

[Kim Murphy · Rating 3 out of 5]

This is useful but focused on American options so not all relevant to me.
There was some good advice and had easy explanations.

[Mark Bokusky · Rating 5 out of 5]

Very good. Got me rethinking my investing strategy.