Its an interesting read anyway, do yourself a favor and borrow this book from the library for free (available in Santa Clara County Library).

@ Rachel – I appreciated your review and your comment above is well thought out and well written. I agree with most of what you said. I would like to add though that when you say, “The ultimate goal of the book, in my view, is to show that the barriers to entry are much lower than most people think.” might be part of the problem. Maybe the barrier to entry shouldn’t be so low. Some would argue that the barrier to entry became too low for mortgages, consumer credit limits and Wall Street risk managers. I mentioned in a previous comment that we have lost our prudence and cynicism. Maybe the barriers to entry should be raised a little until that changes.

Along the same lines, if “investing for market returns becomes the fiscally smart thing to do for the average investor”, maybe the average investor should invest their money into something where their knowledge and abilities are not “average”.

I don’t think they goal of the book is to tell people they can “never manage their money effectively.” But the fact of the matter is that most people don’t. The Paradox of Choice documents that people’s participation in their 401(k) plan drops by 2% with the addition of every 10 mutual fund options. And most 401(k)s have a very limited choice of investments. If the general public has trouble making a decision between, let’s say 50, pre-defined funds, imagine how astronomically more difficult investing must seem when you must choose between every option in the known financial universe.

The point of the book is to show people they have options when it comes to investing, and the options are not necessarily technical or intimidating. You don’t have to hire a broker. You don’t have to follow the hot stocks, hopelessly confused but trying to catch the return anyway. You don’t have to diligently watch stock tickers all day and try to figure out what they mean. The ultimate goal of the book, in my view, is to show that the barriers to entry are much lower than most people think.

I appreciate the people out there who have their own methods and feel confident enough to try their own investment schemes, but realistically that’s not a reasonable solution for most people. I applaud that your returns, especially if you can keep them up year-over-year. Hell, it’s great that you even know your return, because most people don’t have a clue. I would be even more impressed if you could tell me your portfolio’s standard deviation, and I sincerely hope it’s less than 30%.

The argument of the book isn’t that most people CAN’T learn these things. It’s just acknowledging the truth that they probably won’t. And that’s why investing for market returns becomes the fiscally smart thing to do for the average investor.

Firstly, stating that brokerages only market active-type funds because that suits their model is an unbalanced statement. Unless you complement the statement with the proposal that passive fund managers have an interest in telling people that you can never time the market and you can never trade well.

Remember that passive funds have their own model which requires huge assets under management to make their miniscule fee % sufficient to generate cash to keep the lights on.

I think that it is a poor message to send to people that you can never manage your money effectively except just follow the market. It encourages people to follow bubbles on the way up and then follow busts on the way down.

The world of investment book promotion is a strange one and seems to have no problem with “cognitive dissonance” – whereby you experience discomfort because of trying to hold two opposite thoughts in your head.
Investment books lionise Warren Buffett and try to teach us how to invest like him (stock picking) and then sell us books that say passive investing is the only way to go.

It is possible to trade better than the market, if you take the time to learn how, rather than being led by the nose by your stockbroker (check out Reggie Middleton at boombustblog for a small example). Yes, not everyone is suited to investing actively, but that shouldn’t stop people trying to learn. In the same way that everyone is not suited to managing their personal finances, but it shouldn’t stop them trying to learn, from someone like Ramit!