“The Only Investment Guide You'll Ever Need . . . actually lives up to its name.” — Los Angeles Times “So full of tips and angles that only a booby or a billionaire could not benefit.” — New York Times For nearly forty years, The Only Investment Guide You'll Ever Need has been a favorite finance guide, earning the allegiance of more than a million readers across America. This completely updated edition will show you how to use your money to your best advantage in today's financial marketplace, no matter what your means. Using concise, witty, and truly understandable tips and explanations, Andrew Tobias delivers sensible advice and useful information on savings, investments, preparing for retirement, and much more.
|Publisher:||Houghton Mifflin Harcourt|
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About the Author
ANDREW TOBIAS is the author of twelve books, including the New York Times bestsellers Fire and Ice and The Invisible Bankers. He has been a regular contributor to such magazines as Time, New York, and Parade and cohosted the PBS series Beyond Wall Street.
Read an Excerpt
Preface If it is brassy to title a book The Only Investment Guide You’ll Ever Need, it’s downright brazen to revise it. Yet not to do so every few years would be worse, partly because so many of the particulars change, and partly because so many people, against all reason, continue to buy it. In the 38 years since this book first appeared, the world has spun into high gear. Back then, there were no home-equity loans, no 401(k) retirement plans or Roth IRAs . . . no variable annuities to avoid or index funds to applaud or adjustable rate mortgages to consider . . . no ETFs, no 529 education funds, no frequent-flier miles (oh, no!), no Internet (can you imagine? no Internet!) — not even an eBay, Craigslist, or Amazon. (How did anyone ever buy anything?) The largest mutual fund family offered a choice of 15 different funds. Today: hundreds. Stock prices were quoted in fractions and New York Stock Exchange volume averaged 25 million shares a day. Today: 3 billion shares would be a slow day. The top federal income tax bracket was 70%. The basics of personal finance haven’t changed — they never do. There are still just a relatively few commonsense things you need to know about your money. But the welter of investment choices and the thicket of jargon and pitches have grown a great deal more dense. Perhaps this book can be your machete.The Big Picture Not long after this book first appeared in 1978, the U.S. financial tide ebbed: stock and bond prices hit rock bottom (the result of sky-high inflation and interest rates) and so did our National Debt (relative to the size of the economy as a whole). Investing over the next three decades — as difficult as it surely seemed at times — was actually deceptively easy, as the tide just kept coming in. Now we’re in (roughly, vaguely) the opposite situation — very low inflation, very low interest rates, and an uncomfortably high National Debt — making the years ahead a particular challenge. Understanding that challenge — seeing the big picture — will help you put events and decisions in context. Take a minute to consider the National Debt and interest rates; then another minute to consider “the good stuff.”National Debt In 1980, the National Debt — which had peaked at 121% of Gross Domestic Product in 1946 as a consequence of the need to borrow “whatever it took” to win World War II — had been worked back down to 30%. It’s not that we repaid any of it, just that the economy gradually grew to dwarf it. Whether for a family or a business or — in this case — a nation, having a low debt ratio is healthy. It gives you wiggle room if you ever run into trouble, like a recession, and need to borrow. Indeed, that had long been the big idea: that in bad times governments should lean into the wind and run deficits . . . borrowing to boost demand and ease the pain while excess business inventories were gradually worked down . . . and then, in good times, not borrow much, or even run a surplus, to build borrowing capacity back up. Yet in the mostly good years since 1980, our National Debt has ballooned. From 30%, when the Reagan-Bush team took over, it topped 100% in the fiscal year George W. Bush passed it on to his successor. (Only between Bush Senior and Junior was the annual deficit tamed, as Clinton handed off what Fortune called “surpluses as far as the eye could see.”) Although the deficit has once again been tamed as of this writing — meaning that the National Debt is once again growing more slowly than the economy as a whole — the wiggle room is largely gone. I wrote in this space five years ago, with the unemployment rate hovering just under 10% and home foreclosure rates peaking, “We will get through this and emerge more prosperous than ever. But the decade ahead will be more about hunkering down and retooling than about jet skis and champagne.” And, indeed, the unemployment rate has fallen to 5.0%, as I write this in early 2016; foreclosures are running at their lowest rate since 2007; and the stock market is nearly triple its March 2009 low. So we did “get through it.” Even so, the nation’s infrastructure has been allowed to decay badly; the National Debt may require 35 years to shrink back to 30% of GDP, as it gradually did in the 35 years following World War II; and many of the “new” jobs don’t pay nearly as well as the ones they’ve replaced. So it’s still too soon for the champagne.Interest Rates In 1981, Uncle Sam said: Lend me $1,000 for two years and I’ll pay you $336 in interest. In early 2016, Uncle Sam was saying, Lend me that same $1,000 and I’ll pay you $20. And people were rushing to take it. So it is a very different world. In 1981, investors willing to take a risk on stocks or long-term bonds knew that — if inflation didn’t spin entirely out of control — interest rates would eventually fall, making the prices of both stocks and bonds rise. In 2016, investors have to understand that — whatever may come first — interest rates eventually will rise, making bond prices fall (see Chapter 5) and stocks relatively less attractive as well. (The more interest you can get from safe bonds, the less reason to take a risk with stocks.) None of this is to say stocks can’t go up if interest rates do. They absolutely can if rates don’t go too high and sit atop healthy economic growth. But as a general rule, falling rates boost profits and stock prices. And for nearly 35 years, long-term interest rates generally were falling: wind beneath the market’s sails. At this point, if rates were to start falling again in any major way, it would only be because economic conditions are terrible — and that’s not likely to drive enthusiasm for stocks. So either way, up or down, we face a bit of a headwind.The Good Stuff For all our problems, there is the astonishing onrush of technology. People look at the last 50 years of technological progress and they are dazzled. And they think to themselves, “The next 50 years may be equally dazzling! Won’t that be something!” But no, says futurist Ray Kurzweil, they are wrong. Technological progress over the next 50 years will not be “equally dazzling” — it will be 32 times as dazzling, 32times as fast, 32 times as great. The implications are both thrilling and scary. Cyberterrorism? Don’t get me started. There’s no guarantee that, whether as a nation or a species, we’ll keep from hurtling off the rails. That is, indeed, the central challenge of the century. But if we can manage to keep from blowing it, the implications are amazing. Imagine, for example, a world of “nearly free” clean renewable energy, much as we now have nearly free communications. (When I was a kid, a hushed, urgent “I’m on long distance!” meant get the hell away from the phone. And that was for a call to Chicago. Today, the same call — even if it’s to China, and even if it’s a video call — is nearly free.) Nearly free energy would make everything dramatically less expensive — including materials, like energy-intensive aluminum — allowing most people to enjoy a terrific boost in their standard of living. And that’s just energy. The rate of advance in medical technology is another thing, already dazzling, that’s likely to speed up — with astonishing implications. It’s getting from here to there that is the challenge. At best, it will be a bumpy ride. But making sensible economic and financial choices, and getting into sensible habits, will at the very least tilt the odds in your favor to enjoy as much of the upside as possible while avoiding the pitfalls. OK. Let’s get started.
Table of ContentsPreface
PART one Minimal Risk
1 If I'm So Smart, How Come This Book Won't
Make You Rich?
2 A Penny Saved Is Two Pennies Earned
3 You CAN Get By on $165,000 a Year
4 Trust No One
5 The Case for Cowardice
6 Tax Strategies
PART two The Stock Market
7 Meanwhile, Down at the Track
8 Choosing (to Ignore) Your Broker
9 Hot Tips, Inside Informationand Other Fine Points
10 What to Do If You Inherit a Million Dollars; What to Do Otherwise
Earning 177% on Bordeaux
How Much Life Insurance Do You Need?
How Much Social Security Will You Get?
A Few Words about Our National Debt
Cocktail Party Financial Quips to Help You Feel Smug
Selected Discount Brokers
Selected Mutual Funds
Fun with Compound Interest
Still Not Sure What to Do?
Author Biography: Andrew Tobias is the award-winning author of several bestselling books and software programs including My Vast Fortune and Managing Your Money. A frequent contributor to Parade and Worth, he serves as Treasurer of the Democratic Party.
On Friday, January 15th, barnesandnoble.com welcomed Andrew Tobias to discuss THE ONLY INVESTMENT GUIDE YOU'LL EVER NEED.
Moderator: Welcome, Andrew Tobias. Thank you for joining us this Friday evening as part of our Renew Yourself series. Your ONLY INVESTMENT GUIDE YOU'LL EVER NEED is now revised and expanded. Can you tell us about some of its new features?
Andrew Tobias: Thanks for having me. The basic ideas are as they were 20 years ago, but some specifics change. For example, in the last five years we've seen the arrival of a thing called the Internet. Commissions, which used to be prohibitive, really can now be trivial. And there's the Roth IRA, there's Treasury Direct -- lots of specific little ways to shop smarter, get better deals. It was fun adding all this.
Wayne from Sausalito: What is your outlook for the market over the next year?
Andrew Tobias: My head tells me it should be a rough year. After all, valuations are historically very high. Greenspan used the phrase "irrationally exuberant," albeit not specifically or directly about the U.S. market, less than two years ago, when the Dow was 6,500. Today, as you know, it's over 9,000. We have Y2K to worry about, impeachment, maybe a bit of global financial collapse, and the market totally shrugs off everything. My head tells me trouble looms one of these days. But logic and one's head are only half the game. When will euphoria end? Who knows? Did it just end for Yahoo! and the rest this week? Or is that just a breather? I don't know.
John from Boston: How do you figure out if it makes sense to convert to a Roth IRA? What do you do if you find out that you've exceeded the income limit in a year when you convert?
Andrew Tobias: The big advantage of the Roth IRA is that it lets you put more under the tax-deferral umbrella. Yes, it's $2,000 either way, but with the Roth it's $2,000 after-tax money, which means you have, in effect, saved maybe $3,000 pretax dollars. So usually, if you can afford it, Roth is better. But naturally, if you are in a 40 percent tax bracket this year and will retire next year and move to a no-tax state and drop to the 20 percent bracket, there's no point giving up the deduction this year. But most people aren't in that situation.
Laurie from Hoboken: If you have a child, is it smarter to invest for future education expenses using investments in your name as the parent, or in the child's name?
Andrew Tobias: Six of one.... In the kid's name, you can save on taxes, but the college may expect more of that money to go for college. So there's no clear-cut answer.
Amy from New York: Is it smart to invest in high-tech companies? I have friends who seem to be addicted to the gambling aspect of such investments but don't really seem to be making any additional money -- like a trip to Vegas.
Andrew Tobias: The paradox is that high-tech is the future (and to me a very exciting one) of our economy -- our species, even. Yet the prices of the stocks, in my view, more than reflect this already, for the most part. And those who are just jumping in casinolike, without special expertise in a specific field (they don't themselves work in the industry, et cetera), are just feeding the commission slots, paying the spreads between bid and asked and, generally, racking up short-term (fully taxable) gains when they win. They've won for so long, I worry that a hefty correction may come one day.
Carol from Cape May, New Jersey: How would you invest $10,000 that you don't need for a long time?
Andrew Tobias: So many possibilities. And I hope it would be joined by, or be joining, lots of other $10,000s. But the kind of thing to think about might be to split it among some closed-end Asian mutual funds, on the theory that one day Korea and Japan and Thailand and India, et cetera, might come back. It was barely a decade ago that people pretty well imagined Japan would overtake the U.S. Look what happened. Now we imagine Asia is over forever and the U.S. market will just keep zooming. Maybe not.
Mike from New York: How long do you think the Internet stock frenzy will last?
Andrew Tobias: The Internet itself is very much here to stay and just in its infancy, with profound implications (mostly good for consumers). But the crazy valuations? A few of these companies may actually grow into today's prices. Many, I think, will turn out to have been classic bubbles. Did we see the top last week? I kind of think so, but if I know anything, it's that I don't know.
Charles from New York City: Do you believe that Clinton's impeachment -- if that occurred -- would affect the stock market?
Andrew Tobias: Well, he's been impeached. No effect. This miserable trial is going on -- no effect. If he was convicted and we had Al Gore, it's easy to posit no effect. It's easy to posit an excuse to rise, because the uncertainty of trial, et cetera, would be over. And it's easy to posit fall, if this finally broke the "spell" that has tipped the eternal fear/greed balance to greed (not bad greed, you understand, just fear of missing out on profits). What causes someone's depression to lift? Or a funk to fall? It's probably as hard to say for markets as for people. And very often the events of the day are not the causes of these mood swings, but rather the handy explanations.
Georgia from Coventry, CT: How do we know that the government won't change the rules in the future and tax Roth IRAs?
Andrew Tobias: Well, of course, going to a sales tax and getting rid of the income tax would sure make Roth folks feel a little foolish -- there was no tax at withdrawal anyway! But I sure don't see that happening, and I sure don't see Congress messing around with seniors' benefits when they will be such a huge portion of the electorate. Only at the fringes might this happen, if they started counting withdrawal money toward calculations for other things, like eligibility for Social Security benefits. But you pay your money and you take your chances....
Claire from Charlottesville, VA: If you are in your mid to late 20s and your salary is not very high, what percentage of it should you put in an IRA? Should this percentage increase as your salary increases in your 30s? And if you have a few thousand dollars of credit-card debt, should you be putting money in a retirement fund or paying off the debt first?
Andrew Tobias: I would try very hard to fully fund ($2,000) the Roth IRA (a Roth because with low salary, you have a low tax benefit from the traditional IRA). I know it's hard -- especially because it's also so important to rip up those credit cards and get off the 18 percent (or 22 percent!) debt treadmill just as soon as you can. Not having to pay 18 percent or 20 percent is as good as earning it tax-free -- risk-free! An astonishing return. I guess if you could only do one, it should be pay off the cards. But really. And then, ASAP, start funding the IRA.
Curt from Dallas: What will be the trend of 30-year T-Bonds in 1999?
Andrew Tobias: Down, as global crises require further easing of rates and as deflationary tendencies (including the great effect of Internet shopping on prices, cutting out middlemen and making things ever cheaper) keep inflation low. Up, because people will fear Asian and Latin American inflation, needed to stave off global collapse. Maybe IMF will change its traditional model, which seems to be killing, rather than rescuing, economies lately. So...I don't know, and no one else really does either.
Alex from New York: Is it ever a good idea to rent housing as opposed to purchasing?
Andrew Tobias: Sure! Especially if you don't plan to stay put for a while, because the transaction costs of buying and selling can be quite large. But even if you do plan to stay put, that's no reason to buy into a really high market. In some places, prices have gone through the roof, maybe tied to Wall Street riches. In other places, values may be okay. But life is not a business, as my dad used to say, so if you do love a house or condo, and can afford it, you may want to buy even if it doesn't turn out to be the absolute shrewdest investment you can make. Certainly mortgage rates are great these days.
Steve from NYC: President Clinton just proposed tax benefits for investments in underdeveloped urban areas. Can you recommend any investments to take advantage of this incentive?
Andrew Tobias: Sorry, I don't know.
Megan from New York: How are you preparing for Y2K?
Andrew Tobias: I'm going to have the same kind of supplies I'd have for a hurricane or ice storm or earthquake or whatever kinds of potential problems you have in your part of the country. I actually think we're likely to muddle through reasonably well, but there is the genuine (small) risk of considerable disruption. So we are better off as individuals, but also as communities, if we all can get by okay for a week or two without running out of small bills, small food, small cans of Sterno, matches, ketchup -- the essentials. I also think just-in-time inventories and such will be rejiggered, and that all this could certainly cause a recession or odd business cycles, or change the psychology we talked about earlier. So I wouldn't be in the stock market on margin betting that everything will always go up, up, up.
Dave from Ithaca, NY: I recently switched jobs and have only a few weeks to decide what to do with my 401(k). It didn't earn me much at my last job, and I was there for nearly four years. Is it worthwhile for me to transfer the money into another 401(k)?
Andrew Tobias: Absolutely keep it in a tax-sheltered vehicle -- the new 401(k) or your own rollover IRA. I don't know the details and choices of the new 401(k), but take a close look before giving up on it.
Jake from Colorado Springs, CO: What method, in your opinion, is the best to make money quickly and to save for the future?
Andrew Tobias: The surest way to lose money is to try to make money quickly. Sad (and boring!) but true.
Elise from Iowa: What are the proper things to take care of financially if you plan to live abroad for an extended period of time -- say two years?
Andrew Tobias: Sign up with an online Internet banking account, for one thing, to make payments easy. Likewise an Internet broker, for investing.
Valerie from Los Angeles: What is your opinion of DRIPs? I'm thinking of investing long-term in a couple of blue-chip companies, and I'd like to invest directly.
Andrew Tobias: DRIPs (dividend reinvestment plans) are excellent from a personal-discipline point of view, and great for effortless reinvestment, et cetera. Logically, if you were a zillionaire, it wouldn't make a lot of sense, because it's basically saying, Of all the things I can do with my money, the best investment at any given time happens to be the same company that happened to pay this dividend. So for big investors: nah, at least logically. But for convenience and good savings habits, et cetera: yep.
Fred from NYC: How do I convince my parents to start bequeathing me money so that I can pay less estate taxes when they die? They are both in their 80s, and I know there are allowable amounts of "gifts" that can be given or assets that can be handed over. Can you amplify?
Andrew Tobias: Be very nice, always come over for Sunday dinner, and accidentally leave Money magazine open to the periodical estate-planning articles it (and everyone) run, which explain that each parent can give up to $10,000 a year to each child (and grandchild and anyone else) free of gift or estate tax (so $20,000 a year from the two of them jointly to each child).
Sam Murphy from San Diego, CA: Mutual funds consistently underperform the market. Why does everyone buy them? Why not buy index funds instead?
Andrew Tobias: Because mutual funds are sold, and you have to be a buyer, not a seller, to choose index funds. That's one of the things my book pushes: to be a buyer (in everything, not just mutual funds), not a seller.
Claire from Charlottesville: Thanks for answering my earlier question. Another one: If you have access to a 401(k), would you sink your money in that in addition to a Roth, or just do the 401(k)?
Andrew Tobias: If you can afford to do both, for sure do both. If the 401(k) involves an employer match, that is definitely the one to do first, and fully. Nothing beats free money.
Rex from Southside: Brazil refloated its currency, the real, and it didn't crash. The stock market went down last week, but now it is back up again. What can we make of this?
Andrew Tobias: I'm sure there are much better, much more sophisticated answers (in other words, I haven't a clue). But I like to think, in my wildest dreams, that the world and the world capital markets -- awash in cash, incidentally, from our own 401(k) contributions, from Japanese oversaving, et cetera -- somehow sense that a new era is at hand: less money spent on war and trade wars, a global binding of people through communications and things like America Online circling the whole world, almost-free communications among people everywhere, and so on; and that Brazil's problems and a lot of others will be solved, so we're skipping the panic phase. Of course, there's an equal chance that this is just part of the dream-on mindless euphoria, and we are about to plunge into another Dark Ages. [grins] Best of luck to all....
Mark from San Francisco: Do you use an online broker? If so, which one?
Andrew Tobias: Ameritrade.
Mina from Atlanta: What are the odds of getting caught not paying the nanny tax? Can anything happen to you other than a tax penalty if you are caught?
Andrew Tobias: The odds are pretty good, now that you've posted this message. [grins]
Moderator: Thank you, Andrew Tobias, for your thoughtful financial advice. Do you have any closing comments for your online audience?
Andrew Tobias: Shop at barnesandnoble.com. It does a great job.
Most Helpful Customer Reviews
We needed a place to start. It definatly gave us good ideas and suggestions. It gave us avenues to begain and carry through. Out of the three other books we baught at the same time, this one was the most help.
I have read this book four or five times. I get something new out of it every time. The writing is clear and relatively easy to understand, even for folks with a limited understanding of finance and investments. I am a retired CPA. I have read hundreds of books on accounting, finance, economics, and investing. This is the one book that I recommend for a beginner who wants to get his or her financial house in order and begin to lay out a plan to accumulate significant personal wealth.
I'm especially leary of finance books, and have learned that the best way to select books is to read a chapter or two at the book store before you buy. Three chapters into the book, the store closed, so I took it home with me and read it in two days. Tobias very clearly explains a number of issues that most people are simply unaware of, and makes it entertaining along the way. After I finished the book I was moved enough to check his web site and drop him a line. This book will make my XMAS shopping very easy this year.
Perfect for beginners like myself. Buy this book if you are looking for a great read.
I've always admired Mr. Tobias's work. This book is a great starting point to try to sort out the stock market and other investments.
Very basic primer on financial management.
I feel there are a lot of personal retirement books out there and this is just another one of them. They do a good job in the beginning showing different ways on the web to save money. That was at least a little helpful
I have a lot of personal finance/investment books, but this one is the best or close to it. Tobias writes in an entertaining style to keep you reading and includes lots of great info. He explains all kinds of bonds and stock investment strategies that no other book I've read does. He also includes info on retirement plans, college saving plans, etc and has a very good section on how to teach kids about money. If you want to read about personal investing, this is the book!!!
This book has changed my thought process on investments. Looking forward to the future... thank you
Could eliminate all sections on puts, calls and other fancy investment tools and just say if you don't understand don't bother. Frugal list could be just a list not long explanations. Important sights could be a list. Alot of this book is capable of shorter summaries.