Book Review: Investing at Level3 by James Cloonan

[Samiat]

Book Review: Investing at Level3 by James Cloonan​

A Clear Blueprint for the Long-Term Individual Investor

Investing at Level3 by James Cloonan is a thought-provoking guide that challenges the traditional investment advice many individual investors have followed for years. Cloonan, the founder of the American Association of Individual Investors (AAII), draws on decades of experience to demystify overly complex theories and empower readers to take charge of their financial futures using a realistic, data-backed approach.

At its core, the book introduces three levels of investing.

• Level 1 investors follow emotional impulses and constantly shift strategies based on trending advice—think meme stocks and hype-driven trades.
• Level 2, often considered the standard, is the traditional 60/40 portfolio of large-cap stocks and bonds.
• Level 3, the focus of Cloonan’s book, uses real-world evidence to help individual investors build a stock-heavy, long-term strategy that aims for higher returns and reduced risk—not through avoidance of market fluctuations, but by understanding and managing them better.

One of the book’s most powerful messages is its redefinition of risk versus volatility. Cloonan argues that most financial literature confuses the two. Volatility refers to short-term fluctuations in returns, while real risk is the chance of actual financial loss. For long-term investors, he explains, volatility is part of the process and even a potential advantage, as it can lead to higher cumulative returns over time. Therefore, avoiding volatility for fear of short-term losses can ironically increase long-term risk.

Cloonan also challenges common investment assumptions, such as the usefulness of long-term bonds and the idea that international stocks must be part of a portfolio just for diversification. He suggests long-term bonds underperform over time and don’t significantly reduce real risk. While he doesn’t dismiss international stocks entirely, he believes they shouldn’t be added without a clear strategic reason.

Another key takeaway is his support for a more aggressive, stock-heavy portfolio for long-term investors. Cloonan makes the case that a conservative approach often comes with hidden costs and lower returns. Instead of fearing downturns, investors should focus on time-tested strategies, realistic expectations, and staying the course.

In essence, Investing at Level3 is a reassuring, practical guide for the individual investor who wants to break free from the noise of Wall Street and focus on what truly works over the long haul. Cloonan’s insights provide a sense of clarity and control—reminding us that investing doesn’t have to be complicated to be successful.