The Basics: Fire Your Investment Adviser!

Finally, a follow-up on my reading of Burton Malkiel’s Ten Rules for Financial Success, The Random Walk Guide to Investing.

I read it a long time ago and re-read it again recently. As mentioned in an earlier post, the book is essential to those in favor of the efficient market hypothesis.  Burton Malkiel is a renowned economist and prolific writer. Of all his impressive accomplishments, he is probably best known for his book  A Random Walk Down Wall Street, in which he argues that there is a certain level of randomness to asset pricing and that no person can beat the average return of the market on a consistent basis.

As a preamble to his ten principles of investing, Malkiel suggest that you (the reader) go ahead and fire your investment adviser promptly! Because, as he argues, why work with someone who is more interested in making money for himself/herself than making money for you? Why work with someone who’s sole purpose is to earn commission on selling products like load-mutual funds, insurance and annuities? By the way, when was the last time sat down to calculate the fees and commission you’ve paid over the years … after that I dare you to calculate the REAL return on your investments!

Don’t get me wrong, I am not advocating the elimination of brokers, insurance agents and non-fiduciary advisors. I just want transparency and honesty. It is what it is. Why call it financial advice when it is about sales?

The Random Walk Guide to Investing … required reading!

So I just finished one of the Classics – Burton Malkiel’s Ten Rules for Financial Success, The Random Walk Guide to Investing.

Each week I plan to review and discuss the basics and the rules presented in this book – I welcome a discussion, so sign up on the blog and make your comments!

Before we get into the meaty stuff of this book, let’s do a quick introduction to Burton Malkiel and to the investment rules he promotes.

Burton Malkiel is a renowned economist and prolific writer. Of all his impressive accomplishments, he is probably best known for his book  A Random Walk Down Wall Street, in which he argues that there is a certain level of randomness to asset pricing and that no person can beat the average return of the market on a consistent basis. It is a must-read for those in favor of the efficient market hypothesis.

In his book Ten Rules for Financial Success, The Random Walk Guide to Investing he discusses the following basics and rules:

The Basics:

• Fire Your Investment Adviser
• Focus on Four Investment Categories
• Understand the Risk/Return Relationship

The Ten Rules:

1. Start Saving Now, Not Later
2. Keep a Steady Course: The Only Sure Road to Wealth is Regular Savings
3. Don’t Be Caught Empty-Handed: Insurance and Cash Reserves
4. Stiff the Tax Collector
5. Match Your Asset Mix to Your Investment Personality
6. Never Forget That Diversity Reduces Adversity
7. Pay Yourself, Not the Piper
8. Bow to the Wisdom of the Market
9. Back Proven Winners: Model Portfolios of Index Funds
10. Don’t Be Your Own Worst Enemy: Avoid Stupid Investor Tricks. 

My next post will discuss his take on the three basic pieces of investing and my take on his advice (warning: I am a fan of Malkiel).