Nudge, written by Richard Thaler and Cass Sunstein, is an entertaining book about a very serious topic: how we make decisions. This is a compelling and easy to read summary of some of the practical implications of behavioral economics research. Many of the initial behavioral economics experiments have been useful in understanding investment and savings behavior. Most of us use rules of thumb” or heuristics to make difficult decisions, but often these heuristics are biased and perhaps not the best way to make decisions.
Written by Jonah Lehrer, How We Decide is written by a neurologist willing to explain the neurological side of behavioral economics to someone is not a neurologist. As we all know, it is not only easy to decide between Chocolate, Vanilla, and Strawberry; financial decisions are much harder. Moreover, the cost of making the wrong decision about ice cream is a lot less consequential. We lack experience — many financial decisions are made once or perhaps twice in a life time. And unlike ice cream the feedback from our financial decisions is not immediate. When it comes to ice cream, I always prefer chocolate.
Everyone knows they should save for retirement, but what do you do once you get there? Retirement Income Redesigned can help guide you. This is a collection of articles written by a variety of experts on the different aspects and issues associated with what we call financing retirement or what many may call the “distribution” phase of life. Harold Evensky and Deena Katz edited and contribute to the book, and culled the experts who contribute to this well written volume. Jim Otar, one of the contributors, is a financial planner that has built a great retirement calculator that we use to help us estimate sustainable spending.
If you take this book at face value you maybe disappointed. It is not so much about how you compute The Number but rather an odyssey into the meaning of money. If you are a serious student about the meaning of money, this would not be my first choice, but if you want to a lighter perspective on this very serious topic, this is an excellent choice. Written by Lee Eisenberg, the book speaks to real issues of financial planning, but raises even more profound questions directed at forcing us to reconcile what it is that we want once we get there.
Investors and Markets is a series of lectures by William Sharpe. Professor Sharpe is a noble prize winning economist and one of the nicest economists I have ever met. I had to read some of his work in graduate school, and many of us use his Sharpe Ratio to gain a better understanding of the relative cost (relative to risk) of investments. His textbook Portfolio Theory and Capital Markets is a classic that continues to be used in many graduate programs. Most of his writings are not for the timid, (he is a genius) but this book may be one that a non-economist could read. In part this is because it is a compilation of a series of lectures he gave to finance students at Princeton University. The fact that it was a finance class and not an economics class may have helped to limit the degree to which he depends on mathematics to convey his points. But this is not a light read; we happen to think that for the serious investor this is a must read. His focus here is on helping the individual investor which, of course, means all of us.
Investing in an Uncertain Economy for Dummies, edited by Sheryl Garrett, was written by a large team of volunteers in the Garrett Planning Network. While this book is on my shelf, unlike all the others listed here, I did not purchase it. It is on my shelf because I was one of the contributors. Fortunately it has a 4 star rating on Amazon.com. Unfortunately, the title suggests that it was written for the economic downturn. In fact, it was not. It was intended to be a practical advice book on investing, it just so happened that economy decided to take advantage of the title. (Note: I do not receive royalties from the sale of this book, but I was paid with a box of copies, which I will gladly hand out until I run out to every new client who asks for a copy.)
The Investor’s Manifesto, by William Bernstein, is a very easy read about markets and the ways in which the the financial industry obfuscates the process to make it harder for the average investor. More importantly, it is a book about first principals and the key lessons that enable the individual investor to become a master of their financial universe. We recommend this book to the novice investor.