The Lies About Money | Ric Edelman

Summary of: The Lies About Money: Achieving Financial Security and True Wealth by Avoiding the Lies Others Tell Us– And the Lies We Tell Ourselves
By: Ric Edelman


In ‘The Lies About Money’, Ric Edelman presents a comprehensive guide to debunking prevalent investment myths and pitfalls, and outlines actionable strategies to fortify one’s financial security. Diving into fundamental concepts such as discipline, endurance, diversification, and balance, the book teaches readers to use investments as tools for long-term success. In addition, Edelman reveals common misconceptions about mutual funds, uncovers deceptive practices, and offers sound advice on retirement, college savings, life insurance, and other financial goals. Read this summary to unravel the lies that plague the investment world and secure your financial future with Edelman’s practical wisdom.

Investing for Beginners

Investing is not about beating the market, it’s about using your investments as tools. By keeping discipline, endurance, diversification, and balance in mind, you can achieve long-term investment success. Have a regular savings plan, play a long game, diversify widely, and rebalance your portfolio consistently. These factors will help you beat the market and still retain your money. Whether it’s quitting smoking, dropping some weight, or cutting back on fancy coffee, every little bit of savings counts towards your investment success.

Five Key Investment Concepts

Investing can be a daunting task, but understanding these five fundamental concepts can make it easier. The nominal return is the simple gain on your investment, while the rate of return is the percentage gained. The average return takes into consideration market volatility, and the geometric mean is a reliable way to measure it. Investment risk is unavoidable, but it should be compensated with higher returns. Finally, terminal wealth dispersion is minimized by diversifying your investments and owning the full market. Keep these concepts in mind when investing, and stay skeptical of short rules promising success.

Mutual Fund Investment Hazards

Mutual funds are an essential component of many investment portfolios but come with pitfalls that could hinder an investor’s returns. Some of these dangers include deceptive names, excessive trading, outdated pricing, and concealed expenses.

Mutual funds are a type of investment company that enables investors to invest in a diversified portfolio by pooling money from various investors. It offers investors the opportunity to own an interest in the fund’s investments. While mutual funds have their perks, such as diversification and lower investment minimums, there are also several adverse practices associated with them.

One of such practices is manager turnover. Most mutual fund managers have a tenure of three years or less, leading to continuous fund turnover that incurs additional costs and disadvantages for investors who incur transaction costs and tax on short-term gains. Additionally, multiple job holdings by mutual fund managers, where they also work as hedge fund managers, could lead to a conflict of interest and poor investment decisions.

Another practice that poses a threat to investors is excessive trading. Managers who engage in extensive trade, which incurs transaction costs, also raises operational risks for the fund. Furthermore, managers may make investments that veer far away from the portfolio’s stated objectives, causing significant losses for investors, especially in cases like stock funds.

Managers may hold either too much cash or invest more than the fund’s actual investment capital using borrowed funds, both of which present risks that investors may not be aware of. Similarly, some managers may misrepresent a portfolio, also known as window dressing, by buying high-performing securities after they have performed, which misleads investors on the portfolio’s actual performance.

In another instance, mutual funds’ names may deceive investors by misrepresenting what the fund intends to invest in, leading to poor investment decisions. Funds may change their names based on prevalent trends or rename themselves for capital gains, such as bringing in new investors without substantial investment substance.

Additionally, some fund managers employ passive investment strategies that offer subpar returns for their investors while charging high fees. Mutual fund companies also resort to several tactics such as closing and opening funds, which often triggers a wave of investor interest in the fund, and share class proliferation, which subjects investors to various costs and fees, making it harder for investors to find information about a fund’s expenses and returns.

Outdated pricing and trading abuses are other practices that affect mutual fund investments. Some mutual fund companies use stale prices to account for the value of their shares, while trading abuses by allowing market timers to use their funds escalate costs for other investors. Some funds also hide their expenses from investors, making it hard to find information about additional fees and expenses.

In conclusion, mutual funds offer various benefits but pose several hazards that could hinder investors’ returns. It is crucial to assess these risks before investing in a mutual fund and carefully evaluate a fund’s investment substance, expenses, and returns to make a sound investment decision.

Investing Made Easy

Ditch the drawbacks of mutual funds and opt for institutional or Exchange Traded Funds (ETFs). Discipline exercised by institutional investors help overcome the challenges of retail mutual funds. Institutional funds can be invested in through financial advisers like Dimensional Fund Advisers while ETFs provide cheap, real-time transparent investment opportunities in various sectors, just like major institutions do.

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