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How a Second Grader Beats Wall Street: Golden Rules Any Investor Can Learn

ISBN: 978-0-470-37594-5
262 pages
March 2009
How a Second Grader Beats Wall Street: Golden Rules Any Investor Can Learn (0470375949) cover image
Straightforward strategies from a successful young investor

In How a Second Grader Beats Wall Street, you'll follow the story of Kevin Roth, an eight-year-old who was schooled in simple approaches to sound investing by his father, seasoned financial planner Allan Roth, and discover exactly how simple it can be to become a successful investor. Page by page, you'll learn how to create a portfolio with the widest diversification and lowest costs; one that can move up your financial freedom by a decade and dramatically increase your spending rate during retirement. And all this can be accomplished by using some common sense techniques.

Along the way, Kevin and his dad discuss fresh, new approaches to investing, and detail some tried-and-true, but lesser known approaches. They also take the time to debunk the financial myths and legends that many of us accept as true, and show you what it really takes to build long-term wealth with less risk.

  • Discusses how to design a portfolio composed of a few basic building blocks that can be "tweaked" to fit your personal needs
  • Addresses how you can reengineer your portfolio in order to stop needlessly paying taxes
  • Reveals how you can increase returns, regardless of which direction the market goes, by picking the "low-hanging fruit" we all have in our portfolios

With just a little time and a little work, you can become a better investor. With this book as your guide, you'll discover how a simpler approach to today's markets can put you on the path to financial independence.

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Acknowledgments.

Introduction. The Seeds of Financial Success.

Chapter 1: The Claw Will Take Your Money: "10 – 2 = 8."

Chapter 2: Own the World: “Don't Put All of Your Eggs in One Basket.”

Chapter 3: The Advantage of Having Wall Street Marketing Blinders (and Where Can I Get Some?): “I Don't Watch Cramer, I Like Sponge Bob.”

Chapter 4: Adults Behaving Badly: “Don't Act Silly When Something Is Important.”

Chapter 5: Can You Beat a Second Grader’s Portfolio?: “I’m Not Going to Win All Three Spins.”

Chapter 6: Beyond the Second-Grader's Portfolio: “If Dad Says There's a Better Way I Might Try It, but I'm Not So Sure.”

Chapter 7: Bonds—Your Portfolio's Shock Absorber: “Don't Lend Money To Someone Who Won't Pay You Back.”

Chapter 8: Better Than Bonds: “If the Teacher Promises You’ll Be Paid Back, Then It's Okay to Lend Randy Money.”

Chapter 9: Simply Brilliant or Brilliantly Simple—Building Your Portfolio: Don't Bet Your Lunch Money.”

Chapter 10: Investors Who Love To Pay Taxes, and the IRS Who Loves Them: “Don't Pay the Tax Man If You Don't Have To.”

Chapter 11: Nightmare on Wall Street—The Scary Tale of Trick-or-Treat Investing: “If the Game Is Too Hard to Understand, I'm Not Playing.”

Chapter 12: Increase Your Return No Matter What the Market Does: “If You Pick the Low-Hanging Fruit, You Don't Have to Climb the Tree.”

Chapter 13: Keep It Simple Stupid (KISS): “Why Do Grownups Have to Make Things So Complicated?”

Kevin's Postscript.

Notes.

About the Author.

Index.

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Allan S. Roth is the founder of Wealth Logic, LLC, an hourly-based financial planning and investment advisory firm, that advises clients with portfolios ranging from $10,000 to $50 million. His expertise is in portfolio construction and performance benchmarking, and he is frequently quoted in the financial media. An adjunct finance faculty member at the University of Colorado at Colorado Springs and Colorado College, he teaches behavioral finance at the University of Denver's GraduateTax Institute. Mr. Roth is a CPA and CFP with an MBA from the Kellogg School at Northwestern University. During the course of his professional career, he has held the position of finance officer for multibillion-dollar companies and has been a consultant at McKinsey & Company. Roth writes a personal finance column forthe Colorado Springs Business Journal. In spite of thesecredentials, Roth claims he can still keep investing simple.
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"This book acts as an apt reminder that simple can be good" (CEO Middle East, April 2009)

"Kevin Roth, the author’s son, is eight years old. He’s probably got a better investment portfolio than you do. This book reveals his secrets. Our take: Explaining how a second grader can whip most adult investors is a fun way to demonstrate the benefits of a simple indexed portfolio."
MoneySense magazine

"Pablo Picasso spent a lifetime learning to paint like a child. Investors might be wise to do the same. Allan Roth’s How a Second Grader Beats Wall Street reminds us that the most important investment principles are actually simple truths that we lose sight of as our lives and investment approaches grow more complicated. By returning to the basics, we can both simplify our finances and improve our investment results."
Don Phillips, Managing Director, Morningstar, Inc.

"There has been no time in our financial history when implementing the simple investment plan in this book has been more important."
Dan Solin, author of The Smartest Investment Book You'll Ever Read and The Smartest 401(k) Book You'll Ever Read

"Allan Roth shatters the Wall Street myth that investing is too complicated for ordinary investors. Using his son, Kevin, as an example, Allan shows us, in his easy-to-read writing style, how we can construct a simple personal portfolio that is almost certain to outperform the vast majority of investors. If you have been looking for an easy-to-understand book about how to invest successfully—this is it."
Taylor Larimore, co-author of The Bogleheads' Guide to Investing

"Allan presents in a very clever way why a second grader can outperform most investors, professional and individual. He demonstrates both why smart investing is both simple and also why it is not easy for adults to execute because of behavioral mistakes to which they are prone."
Larry Swedroe, author of Wise Investing Made Simple

"I have a very strong feeling that sometime in the not-too-distant future I will happily be working for Allan Roth's son! If you buy only one how-to book this year, this is the one! Allan Roth is a National Treasure."
Mike Causey, senior correspondent, FederalNewsRadio.com

"Successful investing should be a matter of choice, not chance. Follow this book’s advice and your probabilities of success are 100% in your favor."
Paul Merriman, author of Live It Up Without Outliving Your Money!, and publisher of FundAdvice.com

"Allan Roth gets an A+. It is no surprise that a second grader beats Wall Street, because everything we need to know about beating the pros is taught in the first grade. That is when we learn to add and subtract. And after subtracting the high fees and commissions that the pros charge, their results fall far short of a simple market return."
Richard Ferri, CFA, investment advisor and author of The ETF Book

"Using just a bit of logic and a dash of arithmetic, Allan Roth lucidly explains why low-cost index funds should be the investment of choice for 2nd graders as well as their parents and grandparents."
John Allen Paulos, mathematics professor at Temple University and author of Innumeracy and A Mathematician Plays the Stock Market

"Kevin, the second grader, is really smart and cool! He knows what it took me decades to learn. A smart strategy is to diversify broadly across US stocks, international stocks and high-grade US bonds using low-cost, tax-efficient index funds. He even taught me how individuals can increase their fixed-income returns without incurring higher risks. He will also teach you about asset location and the importance of saving in the most tax-advantaged savings vehicles, like a 401(k) and Roth IRA. By following Kevin's advice, we, too, can be smart investors. But we may never be as cool as Kevin!"
William Reichenstein, Powers Chair in Investment Management at Baylor University

“If you’d like to learn more about what makes good (and simple) investing, Roth’s 2009 book, How a Second-Grader Beats Wall Street, is a good start and a must for any index investor’s library.”
Scott Burns, AssetBuilder

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