Here’s the first installment of what I think you need to do to go from an absolute beginner to basically competent about personal finance.
Take a look at other personal finance sites and you will quickly see their book recommendations are tilted towards pop-finance, generally feel good publications full of stories (not math) and meaningless gibberish like “make your money work for you.” A classic example is if you see a recommendation to read “Think and Grow Rich,” you should run not walk away from whoever is giving you that advice!
That’s not what we’re doing here. Instead we’re building a solid foundation so you know and understand what’s going on in finance just as much as any wall street professional and can actually do the math too.
The Forbes / CFA Institute Investment Course: Timeless Principles for Building Wealth
This is a super fast and easy read at only ~250 pages. Covers absolute basics like dollar cost averaging, basics of how securities markets and brokerages work, first steps in tax efficiency like traditional vs. Roth IRA, and technical vs. fundamental analysis.
Key Takeaway: learn basic financial terminology.
“Research has shown that 90 percent or more of the variability in portfolio returns is explained by asset allocation. Only a small portion is due to security selection. Yet investors often overlook this critical step, perhaps because they find it boring or less exciting than deciding; what stocks to buy. However, before jumping into the markets, decide how much of your wealth should in each of the major asset classes. The answer will depend on a number of factors. Here is a general rule of thumb: the longer your investment horizon, the more risk you should be able to tolerate and the more you can allocate to equities.”The Forbes/CFA Institute Investment Course
Stocks for the Long Run
Classic must read advocating for holding a large percentage of your investment portfolio in stocks. Also the reason I tilt my portfolio to Value and am building towards a net long 140 permanent leverage position.
Key Takeaway: despite their volatility, stocks are the best asset class for long term portfolio growth and should makeup the majority of your portfolio (how much exactly depends on your risk tolerance). Despite growth stocks occasionally outperforming for short periods, you should tilt towards value.
“Over the past 200 years the compound annual real return on a diversified portfolio of common stock is nearly 7 percent in the United States, and it has displayed remarkable constancy over time.”Stocks For the Long Run
A Random Walk Down Wall Street
Now that you have some of the basic terms down from the above two books, you’re ready to start dipping your toe in and looking at actual strategies. This fundamental piece walks you through most of the classic strategies, from technical and fundamental analysis to behavioral finance, CAPM, and Fama-French 3-factor.
Key Takeaway: After reviewing most of the investment strategies available today, the author ends up recommending a long-term, dollar cost average, buy and hold index ETFs strategy. Weight towards stocks based on your risk tolerance and age.
“It seems very clear that under scientific scrutiny chart reading must share a pedestal with alchemy. There has been remarkable uniformity in the conclusions of studies done on all forms of technical analysis. Not one has consistently outperformed the placebo of a buy-and-hold strategy. Technical methods cannot be used to make useful investment strategies. This is the fundamental conclusions of the random theory.”A Random Walk Down Wall Street
Khan Academy Personal Finance Course
This is free! Covers basics like compound interest, FICO scores, what is a stock, differences between a mutual fund and ETF, should you buy or rent etc.
The course is split up into many short videos (they average around 7 minutes), so it’s easy to choose like from a menu what you need and skip what you already know. I also like to watch on 2x speed.