books – My Investing Discoveries

I read this so you don’t have to! The Behavioral Investor by Daniel Crosby

“The moral of the story: get a lobotomy and get rich.”
—Daniel Crosby

Since I now have money invested in the market, it’s time to face my humanity. Behavioral finance studies how psychology affects investors, and in “The Behavioral Investor” psychologist and asset manager Daniel Crosby investigates the ways in which our brains interfere with our investing success.

AAII Journal editor Charles Rotblut interviewed Crosby in 2019 and made me much more interested in how investors “ought to drive out emotion at every turn.” Crosby covers sociology, how investing affects the brain, physiology; ego, conservatism, attention, emotion and how investors can overcome all four; and how behavioral investing is rules-based. Each chapter ends with a “What’s the big idea?” section that summarizes main concepts.

Every time I go to check my Schwab account just to take a quick peek at my investments, I hear Vanguard founder John Bogle’s voice in my head: “When you get those regular retirement plan statements … don’t open them. Don’t peek. And when you do peek … be sure you have a cardiologist standing by. Because you will be so amazed at how much money you’ve accumulated over 20 or 30 or 40 or 50 years that you won’t believe it. You’ll probably faint, or something worse, and there will be a doctor there to revive you.”

I saw this sentiment echoed in “The Behavioral Investor,” as I suspected it would be: “Greg Davies shows that if you check your account daily, you’ll experience a loss just over 41% of the time. Pretty scary when we consider that human nature makes losses feel about twice as bad as gains feel good! Look once every five years and you would have only experienced a loss about 12% of the time and those peeking every 12 years would never have seen a loss. Twelve years may seem like a long time, but it’s worth remembering that the investment lifetime for most individuals is likely in the range of around 40 to 60 years.”

I used to think this was a more complicated idea, but it simply means that if you don’t look at your account constantly, you’re less likely to see your account in the red. I’ve read enough AAII articles—specifically on behavioral finance—to know that my emotions aren’t going to change the direction of the market, so why even get them involved? Don’t my emotions have enough work to do already? I’ll save it all up for 20, 30 or 40 years and then let it all out when I see how much money I’ve made!

Crosby also provides a helpful lesson on diversification: “Left to our own devices, we create portfolios in our own image. Americans buy American stocks. Steel workers are overweight manufacturing, while financiers double down on bank stocks. The timid fail to allocate to equities and the overconfident hold large positions in single stocks. Like an old married couple, our holdings start to look just like us, and there is great danger in that similarity.” He also encourages investors to avoid mutual fund manager Peter Lynch’s famous strategy of “buying what you know” in order to combat the tendency to make our portfolios “overweight [in] what we know.” Instead, he counsels us to “put in place a plan that diversifies across geographies and asset classes, both familiar and foreign.”

To really drive this strategy home, Crosby says, “By buying a diversified basket of index funds that covers a variety of asset classes, know nothing investors (who often know a great deal) are likely to beat more than 90% of active managers and have time to focus on pursuits more meaningful than compounding wealth.” I like those chances, especially as a “know nothing” beginning investor! (OK, maybe I know like three things now.)

Though Crosby doesn’t say specifically how often I should be checking my Schwab account, I’ll probably limit it to once a week as I start and then build up to once a month. I still want to know how my investments are doing, even if it’s just to say:

If you’re just getting started in investing, I wouldn’t recommend for this book to be number one on your reading list. I’m glad I worked up to it after reading more books on the basics, because if it was the first investing book I picked up I wouldn’t have been able to apply the lessons as well as I can now.

Stay tuned as I grow my investing library and read more books so that you don’t have to!

I read this so you don’t have to! Broke Millennial by Erin Lowry

Why are millennials the most educated and underpaid group of people? Is it because the workforce doubled when women entered it? Is it because wages stayed roughly the same for 40 years compared to inflation and supply overwhelmed demand? Is it the rise in student loan debt? Is it because our superiors’ families are able to live on one income and have been since the beginning of their careers? Is it because the world consistently asks more of us than it can offer in return?

These were the questions running through my head as I read Erin Lowry’s “Broke Millennial: Stop Scraping By and Get Your Financial Life Together.” Rife with hashtags and helpful action lists, “Broke Millennial” is the most in-depth finance book I’ve read so far. Lowry emphasizes getting out of debt and building your credit while lifting the anxious veil from money that has plagued so many young people. She covers how to overcome psychological blocks when it comes to money, the basics of budgeting, picking the right place to put your money, credit reports and scores, how to ditch debt and student loans, finances and friends, getting financially naked with your partner, living at home after college, negotiating salary, decoding investing, retirement basics, financial planners and buying a house.

Her lessons on credit and budgeting were the most helpful to me. She says, “Think of a strong credit score as an insurance policy for your financial life. A strong credit score proves to a lender that you’re reliable, which directly correlates to favorable loan terms.”

Lowry emphasizes credit throughout the book, but her chapter on credit cards specifically pushes for millennials to not carry a balance on their credit cards month to month, “‘It’s been a rough month. Can’t I just charge this to my card even if I can’t afford it?’ The short answer to this question is no, you can’t. Okay, that’s not entirely true because, yes, you are capable of charging unexpected expenses to your card, but you probably shouldn’t. Credit cards can be, and often are, a fallback for unexpected expenses except that this option comes with a hefty price tag. Having an emergency fund even when you’re in debt is incredibly important for this reason.” This is why I put off getting a credit card for so long—credit freaks me out! But her breakdown helped me understand how vital it is to only use a credit card for what you can afford.

Saving, or “paying yourself first,” is also something Lowry thinks is extremely important: “Saving money prevents you from sinking deeper into debt by providing a buffer when you hit a streak of bad luck and everything you own suddenly breaks. The other option is to finance your emergencies on a credit card and begin or continue the downward spiral of high interest and a principal balance that refuses to decrease.”

Lowry suggests this behavioral finance hack: “Put your savings in an account you don’t see when you log into your main checking account. This probably means using a different bank entirely. The out of sight, out of mind principle will apply when you feel a bit strapped for cash. This way your savings isn’t sitting right in front of you saying ‘Hey, you can skim some off the top here!’ and it’s easier to let it continue to accumulate.” I’m already planning on opening a high-yield savings account with a different bank than my current one, so I’ll soon have this covered!

A few different budgeting methods are discussed, but the one that stood out to me was percentage budgeting: “One of the more effective and less stringent budgeting methods—the percentage budget—often outlines three main categories for your cash: fixed costs (50 percent), financial goals (20 percent), and wants or flexible spending (30 percent).” Lowry also notes that the financial goals (or savings) percentage doesn’t include retirement savings since the percentage budget should be performed using your aftertax income and retirement contributions will come from pretax income. I like the idea of this budgeting process, so I’ll be trying it out and I’ll report back on how it goes.

The chapter on student loans was quite detailed, and I’ll be returning to it when I cover student loans in the future. Life looks different for millennials and the generations to come than it did for our parents and elders, and “Broke Millennial” does a great job of educating and demystifying money without overwhelming me with existential dread!

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I read this so you don’t have to! Clever Girl Finance by Bola Sokunbi

I found “Clever Girl Finance” by Bola Sokunbi when searching for beginning investor books, and I hesitated before buying it. Though the world of finance is dominated by men, particularly white men, I wondered if financial literacy needed to be gendered at all. Sokunbi answered this question within the first few pages of the book, saying that “despite [women] earning more than ever before, we are paid significantly less for doing the same work as our male counterparts in nearly every single occupation and industry. On average, women earn about 20% less than men … On top of that, we are living longer than men by an average of 5–10 years, which means we actually need more money for our financial well-being in retirement than men will.”

This reminded me of a comment on a video by YouTuber Elena Taber covering investing for beginners:

While reading, I did find it easier to learn from someone with similar life experiences as me. I had a feeling that nothing was being left out that might apply to me specifically.

Sokunbi covers your money mindset, how to get your money organized, budgeting, debt and loans, investing, credit, protecting yourself, making more money and key financial actions. Each section has helpful “Take Action” checklists with activities you can do to understand your relationship to money based on how you grew up, what you want to accomplish with your money, tracking your spending, creating a budget, getting your student loans under control, outlining a retirement savings plan and more.

I was most drawn to the chapter on budgeting and saving, especially how much is recommended to have in emergency savings. Sokunbi mentions budgeting apps as a simple way to start, but cautions “it can detach you from closely monitoring your finances if you don’t make a conscious effort to do so.” She says that you should have “three to six months of your essential living expenses in emergency savings. This includes living expenses related to your housing, transportation, and food needs” and the range is dependent on if you’re partnered (three months) or single (six months).

Regarding where to keep your emergency savings, Sokunbi suggests that they should be “easily accessible and liquid so you can get to it when you need it without having to wait and without having to worry about how financial markets are performing. Therefore, it shouldn’t be tied up in investments like the stock market or in real estate. An interest-bearing savings account or a certificate of deposit are good places to keep this money.”

But what I really appreciated about this breakdown is how Sokunbi highlights the behavioral aspect of saving, “You also want to make sure that you are keeping your emergency savings separate from your other financial goals. Blending your savings goals together can get confusing, and in the event you have to use your savings, taking the money out of a comingled account can make you feel like you are setting yourself back with your other goals as well.”

Though I could take or leave the gendered jokes about handbags and shoes (Carrie Bradshaw would love this book), overall I found Sokunbi’s writing style extremely informative and easily accessible. The “Take Action” sections are the most valuable part of the book, and I’ll be returning to them throughout my investing discoveries.

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