Weekend Reading: 5 Big Retirement Concerns, Failure of the Finance Industry and a (late) Summer Reading List

Here are some articles that caught my attention this past week. Topics include: How the finance industry is failing you, 6 books Bill Gates wants you to read and what the market’s P/E ratio wont tell you.

The Biggest Problem of the Finance Industry Today

Blackrock had a post on their blog recently, detailing the top 5 questions/concerns investors have, #1 stood out to me:




Now, the questions and concerns are legitimate questions to have. Ensuring you have enough money in retirement is incredibly important.

But how, with a multi-trillion dollar finance industry, can the number one question people have be “How do I start?”
Maybe I am looking too far into this (the survey is from 2011 and involved just over 1,000 people), but what does it say about an industry (whose job is to “have your best interests at heart” – aka, a fiduciary standard) that has made investing and retirement so complicated that a near majority of people become paralyzed just trying to get started?

Begin To Invest’s About Page features a picture of the Manhattan skyline, with the following:

lower manhattan

“Recognize this place? Its lower Manhattan. One of the most famous and valuable block of real estate in the world.

And it basically runs on the billions of dollars in fees investors like you and I pay every year.

That 1.5% per year you pay an asset manager? That 1.2% Expense Ratio you pay for that Mutual Fund? More than likely it gets funneled into one of those buildings you see above.

After a little bit of research, the question wasn’t “Who can help me?” anymore, but instead “How do I help myself?”


If investing was framed as being simple, straightforward and easy – a lot of those offices above would be for jobs outside of finance.
We have made an industry so convoluted, so seemingly elaborate, that it becomes nearly impossible for those on the outside to see their way in.

And I am probably guilty to some extent too, writing and featuring topics that vary too widely from what this site is intended to be about – Beginning To Invest.

As an industry, let’s get back to the basics. Charging a client $500 for a meeting to discuss the differences between a ROTH IRA and Traditional IRA and starting an account for them is absurd. Recommending a mutual fund today with a 4% front end load and high expense ratio should be a crime. Putting a client’s portfolio into 50 different active mutual funds to make it look like you are worth 2% a year is ridiculous.

But this occurs every day, because we have made investing so complicated and intimidating that they have no choice. There is plenty of money to be made in finance, it can be done without screwing over everyone who comes to your door.



6 Books on Bill Gates’s Summer Reading List:

Bill writes:

“If you’re looking for something to read this summer, I’d recommend any of the books below. I read them all earlier this year and think each one is terrific. Only one, The Rosie Project, qualifies as a typical beach read. But all six are deeply informative and beautifully written.”


Here is his list:



Business Adventures: Twelve Classic Tales from the World of Wall Street
“Business Adventures, by John Brooks. Warren Buffett recommended this book to me back in 1991, and it’s still the best business book I’ve ever read. Even though Brooks wrote more than four decades ago, he offers sharp insights into timeless fundamentals of business, like the challenge of building a large organization, hiring people with the right skills, and listening to customers’ feedback. He is also a masterful storyteller, peppering his articles with compelling portraits of everyone from General Electric executives to the founder of Piggly Wiggly groceries. His article on the fate of the Ford Motor Company’s Edsel is a classic. Business Adventures is out of print in hardcover and paperback, but you can now buy it in e-book form. And you can download chapter 5, “Xerox Xerox Xerox Xerox,” free. I wish all business writing were half as good.”


This book had been out of print for decades, and therefore is hard to find (and expensive when you do – the one used copy on Amazon is selling for $3,000!) but there is a new edition coming out in September, which is under $11 – check out the links above to preorder.





Stress Test: Reflections on Financial Crises

Stress Test, by Timothy F. Geithner. The central irony of Stress Test is that a guy who was accused of being a lousy communicator as U.S. Treasury Secretary has penned a book that is such a good read. Geithner paints a compelling human portrait of what it was like to be fighting a global financial meltdown while at the same time fighting critics inside and outside the Administration as well as his own severe guilt over his near-total absence from his family. The politics of fighting financial crises will always be ugly. But it helps if the public knows a little more about the subject—what’s at stake, what the options are, what has worked in similar situations—so that the loud talkers resonate a bit less and the knowledgeable ones a bit more. If Stress Test continues to attract lay readers, it could make at least a modest difference the next time around.”

This is getting shipped to me as we speak, can’t wait to get into it.





The Bully Pulpit: Theodore Roosevelt, William Howard Taft, and the Golden Age of Journalism

“The Bully Pulpit: Theodore Roosevelt, William Howard Taft, and the Golden Age of Journalism, by Doris Kearns Goodwin. I read a lot about Teddy Roosevelt last year, around the time Melinda and I took our kids to the Panama Canal. He was instrumental in getting the canal built, and I’d assumed it was the highlight of his career. But it wasn’t. It’s a testament to the breadth and depth of Roosevelt’s accomplishments that the canal warrants only a handful of mentions in this biography. There’s just too much other fascinating material competing for space, from Roosevelt’s relationship with the press and his friendship with William Howard Taft (who was brilliant in his own right) to his efforts to fight corruption and reform the political system.
I’m especially interested in the central question that Goodwin raises: How does social change happen? Can it be driven by a single inspirational leader, or do other factors have to lay the groundwork first? Sometimes a single leader can make a big difference: In the field of global health, Jim Grant almost singlehandedly created a global constituency for children, sparking a movement to double vaccination rates and save millions of lives. But Roosevelt’s case was different. Although he tried to push through a number of political reforms earlier in his career, he wasn’t really successful until journalists at McClure’s and other publications had rallied public support for change.
I loved Goodwin’s Team of Rivals – Team of Rivals: The Political Genius of Abraham Lincoln – and highly recommend this one too.”




The Rosie Project: A Novel

The Rosie Project: A Novel, by Graeme Simsion. “Melinda picked up this novel earlier this year, and she loved it so much that she kept stopping to read passages to me. I started it myself at 11 p.m. one Saturday and stayed up with it until 3 the next morning. Anyone who occasionally gets overly logical will identify with the hero, a genetics professor with Asperger’s Syndrome who goes looking for a wife. (Melinda thought I would appreciate the parts where he’s a little too obsessed with optimizing his schedule. She was right.) It’s a funny and profound book about being comfortable with who you are and what you’re good at. I’m sending copies to several friends and hope to re-read it later this year. It is one of the most enjoyable novels I’ve read in a long time.”





The Sixth Extinction: An Unnatural History

The Sixth Extinction: An Unnatural History, by Elizabeth Kolbert. Climate change is a big problem—one of the biggest we’ll face this century—but it’s not the only environmental concern on the horizon. Humans are putting down massive amounts of pavement, moving species around the planet, over-fishing and acidifying the oceans, changing the chemical composition of rivers, and more. Natural scientists posit that there have been five extinction events in the Earth’s history (think of the asteroid that wiped out the dinosaurs), and Kolbert makes a compelling case that human activity is leading to the sixth. Unlike a lot of people who write about the environment, Kolbert doesn’t resort to hype. She just lays out the facts and wraps them in memorable anecdotes. It’s a sobering but engaging and informative read.








Reinventing American Health Care: How the Affordable Care Act will Improve our Terribly Complex, Blatantly Unjust, Outrageously Expensive, Grossly Inefficient, Error Prone System

Reinventing American Health Care: How the Affordable Care Act Will Improve Our Terribly Complex, Blatantly Unjust, Outrageously Expensive, Grossly Inefficient, Error Prone System, by Ezekiel J. Emanuel. One of the architects of the Affordable Care Act (a.k.a. Obamacare) makes the case for why the U.S. health care system needed reform and how Obamacare sets out to fix the problems. Although he was deeply involved in its creation, Emanuel is good about making it clear when he’s educating you about the history of health care and when he’s advocating for his ideas. He calls out a few things he disagreed with in Obamacare, like the creation of a separate health-insurance exchange for small businesses. And unlike a lot of experts, he’s willing to make predictions about how health care will change in the coming years. Some day we’ll be able to look back and see whether he was right. The facts and history that Emanuel lays out would be useful to anyone involved in the debate over health care, no matter what their point of view is.




Gates explains his picks a little further in his video here:



(Attempting To) Trade Around A Market Top

Cullen Roche, in his post, “This Might be a Stock Bubble, but Valuation Metrics Won’t Help you Understand that” writes about using market fundamentals as a justification we are in a stock market bubble.
Whether we are in a bubble or not, trying to trade around the top based on a valuation metric is useless. The valuation metrics that are often cited by those claiming we are in a bubble have poor historic track record (along with those making these claims – as Cullen points out) , and as the late economist John Maynard Keyes wrote: “The market can stay irrational longer than you can stay solvent.”

Value investing is not about timing the market, so those indicators used by value investors really won’t help you.

Even hard core value investing greats like Benjamin Graham never advocated going 100% out of (or into) stocks. He advised sliding your asset allocation in stocks between 25 and 75%, adjusting as the market moves year after year.

Using basic valuation metrics on stocks should help raise your long term capital appreciation rate. But they are certainly not good for timing tops and bottoms in the market.



Wealth: More Than Just Money


I am usually focused on writing about all things money here on Begin To Invest. But even if you are not a stock market geek like many financial bloggers, there is a much bigger reason to still have your financial ducks in a row and have the basic knowledge of investing.

Mr. Clements touches on that topic in his Wall Street Journal post this weekend.


“What is wealth? To me, it isn’t a particular sum of money. Rather, it’s the freedom to spend your days doing what you’re passionate about and what you think is important.”


Whether you live off of a million dollars or fifty thousand is not important. But using that money wisely to give yourself financial independence is what is. Financial independence means being able to spend your days doing what you enjoy – and that truly is what is most important.



That’s all for this weekend – Enjoy!

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