Book Review: “The Investment Answer” by Daniel C. Goldie & Gordon S. Murray
Your Guide to Smart, Simple, and Successful Investing
Overview
The Investment Answer is a concise and impactful guide that distills the complexities of investing into five essential decisions. Authored by Daniel C. Goldie, a seasoned investment advisor, and Gordon S. Murray, a former Wall Street professional, the book offers clear, jargon-free advice aimed at helping investors make informed choices to secure their financial future .
The Five Key Decisions
1. The Do-It-Yourself Decision
The authors emphasize the importance of choosing between managing your investments independently or seeking professional assistance. They advocate for hiring an independent, fee-only advisor who acts as a fiduciary, ensuring your interests come first. This contrasts with commission-based brokers who may have conflicting incentives .
2. The Asset Allocation Decision
Determining how to distribute your investments among various asset classes—such as stocks, bonds, and cash—is crucial. Goldie and Murray highlight that asset allocation significantly influences your portfolio’s risk and return profile. They suggest tailoring your allocation based on factors like age, risk tolerance, and investment goals .
3. The Diversification Decision
Diversification involves spreading investments across different asset classes and sectors to mitigate risk. The authors caution against concentrating investments in a single stock or sector, citing examples like the Enron collapse to illustrate the dangers of inadequate diversification .
4. The Active vs. Passive Decision
Goldie and Murray advocate for passive investing strategies, such as using low-cost index funds, over active management. They argue that active managers often fail to outperform the market consistently and that passive investing offers a more reliable path to achieving market returns .
5. The Rebalancing Decision
Regularly rebalancing your portfolio ensures that it remains aligned with your desired asset allocation. This process involves selling overperforming assets and buying underperforming ones, promoting a disciplined approach to buying low and selling high .
Additional Insights
• Avoid Market Timing: The book warns against attempting to time the market, emphasizing that even professionals struggle with this strategy. Instead, a long-term, buy-and-hold approach is recommended .
• Emotional Discipline: Recognizing the impact of emotions on investment decisions, the authors stress the importance of maintaining discipline and avoiding reactions based on fear or greed .
• Power of Compound Interest: Starting early and consistently investing allows the power of compound interest to significantly grow your wealth over time .
Conclusion
The Investment Answer serves as a valuable resource for both novice and experienced investors. Its straightforward approach demystifies the investment process, empowering readers to make informed decisions that align with their financial goals. By focusing on these five key decisions, the book provides a roadmap to building a robust and resilient investment portfolio.
Your Guide to Smart, Simple, and Successful Investing
Overview
The Investment Answer is a concise and impactful guide that distills the complexities of investing into five essential decisions. Authored by Daniel C. Goldie, a seasoned investment advisor, and Gordon S. Murray, a former Wall Street professional, the book offers clear, jargon-free advice aimed at helping investors make informed choices to secure their financial future .
The Five Key Decisions
1. The Do-It-Yourself Decision
The authors emphasize the importance of choosing between managing your investments independently or seeking professional assistance. They advocate for hiring an independent, fee-only advisor who acts as a fiduciary, ensuring your interests come first. This contrasts with commission-based brokers who may have conflicting incentives .
2. The Asset Allocation Decision
Determining how to distribute your investments among various asset classes—such as stocks, bonds, and cash—is crucial. Goldie and Murray highlight that asset allocation significantly influences your portfolio’s risk and return profile. They suggest tailoring your allocation based on factors like age, risk tolerance, and investment goals .
3. The Diversification Decision
Diversification involves spreading investments across different asset classes and sectors to mitigate risk. The authors caution against concentrating investments in a single stock or sector, citing examples like the Enron collapse to illustrate the dangers of inadequate diversification .
4. The Active vs. Passive Decision
Goldie and Murray advocate for passive investing strategies, such as using low-cost index funds, over active management. They argue that active managers often fail to outperform the market consistently and that passive investing offers a more reliable path to achieving market returns .
5. The Rebalancing Decision
Regularly rebalancing your portfolio ensures that it remains aligned with your desired asset allocation. This process involves selling overperforming assets and buying underperforming ones, promoting a disciplined approach to buying low and selling high .
Additional Insights
• Avoid Market Timing: The book warns against attempting to time the market, emphasizing that even professionals struggle with this strategy. Instead, a long-term, buy-and-hold approach is recommended .
• Emotional Discipline: Recognizing the impact of emotions on investment decisions, the authors stress the importance of maintaining discipline and avoiding reactions based on fear or greed .
• Power of Compound Interest: Starting early and consistently investing allows the power of compound interest to significantly grow your wealth over time .
Conclusion
The Investment Answer serves as a valuable resource for both novice and experienced investors. Its straightforward approach demystifies the investment process, empowering readers to make informed decisions that align with their financial goals. By focusing on these five key decisions, the book provides a roadmap to building a robust and resilient investment portfolio.
