By JLP | May 15, 2006
I’m embarrassed to say that I just finished reading The Coffeehouse Investor by Bill Schultheis for the first time. This book has been out since 1998 and I’m just now getting around to reading it. Boy have I been missing out! This is one of the BEST books on investing I have read in quite a while. Schultheis does a wonderful job making the investing process as simple as possible.
According to the author, the three ingredients for investment success are:
1. Asset Allocation – choosing the best combination of stocks, bonds, and cash to provide you with the greatest chance of achieving your financial goals with the least amount of risk.
2. Approximate the Stock Market Average – making sure you stock market investments are doing at least as well as what the stock market as a whole is doing.
3. Saving – knowing how much money you need to set aside each month to reach your financial goal and eventually saving it.
Schultheis is a firm believer in index investing. Why? Because after fees, most mutual fund managers cannot beat the index on a consistent basis year-in and year-out. Yes, it is POSSIBLE to beat the market but for most people it is HIGHLY unlikely that they will be able to do so. Therefore, indexing is the best strategy for most people. Besides, with life as busy as it is, who wants to spend their precious time trying to find the next hot stock or mutual fund? That’s the author’s viewpoint. For the most part, I agree.
Since Schultheis spent 13 years working for a major brokerage house he understands how that business works. He’s not too fond of it. In the chapter on risk, he talks about the two main types of risk: stock market risk and inflation risk. He says that Wall Street has a fascination with Stock Market Risk because that is the risk that they make money from by getting people to buy and sell stocks and mutual funds in an effort to avoid this risk. In reality, investors should be more concerned with inflation risk because that is the risk that is eating away at spending power. The way you beat inflation risk is by staying in the market for the long-term.
If there is a shortfall to The Coffeehouse Investor, it’s that he doesn’t explain how he arrived at the numbers he uses in the Retirement Worksheet Factors. Most people wouldn’t care about this information. However, I do because I like to know the nitty gritty (call me strange). Other than that, the book is great.
The version of the book I read is relatively short and can easily be read in a few hours. I HIGHLY recommend this book!
On a scale of 1 to 10, with 10 being the highest, I give The Coffeehouse Investor a 10. If you haven’t read this book, READ IT!