Book Review: The Lies About Money

Welcome again to another edition of the Amateur Financier book review.  Today, we’re going to cover a book written by a professional in the financial arena, one whom I had never heard of prior to getting his book.  Ric Edelman is a financial advisor, who runs his own financial services firm, writes a syndicated advice column, and has a radio show.  The fact that I missed hearing about him is apparently more my lack of a truly wide financial reading list.

He is quite passionately opposed to investing in regular mutual funds, a point made though out his book, The Lies About Money.  This book attempts to correct, well, the lies about money we are told by most financial advisers attempting to sell us a bill of goods. Of course, being a financial adviser himself, perhaps Mr. Edelman is attempting to sell us on his particular products and services.  So, is there useful information to be found in The Lies About Money, or is it a thinly disguised sales pitch?  Let’s find out.


the-lies-about-moneyThe first few chapters introduce Mr. Edelman’s investing philosophy, which should be familiar to most personal finance readers: Save regularly, hold your investments for the long term, diversify, and occasionally re-balance when things get too far out of whack.  The first chapter introduces the concepts, the second covers some of the statistics behind the strategy, and the third notes that the easiest way to invest is to use mutual funds.  So far, pretty much par for the course, right?

Well, that’s where things start to get interesting.  Chapter four covers the problems with mutual funds, listing no less than twenty five individual flaws surrounding retail mutual funds, from closet indexing to holding excessive cash to illicitly steering trading business to select brokers in exchange for payments.  If that wasn’t enough, it’s followed by a time line of illegal and morally questionable actions by mutual fund companies, from late 2003 to mid 2007 (and continuing online), that includes every major (and a few minor) fund families and impugns most of the retail mutual fund market.

Luckily, chapter five brings us a solution: use institutional mutual funds, mutual funds designed for large institutions (think: college endowments, pension funds, etc.).  This way, you can avoid most of the troubles with mutual funds, while still investing in a way that leaves you properly diversified; although, you have the problem that institutional shares can only be purchased through approved financial advisers.  Chapter six briefly covers ETFs as one possible solution for an investor of more modest means, who wants to save the fees charged by advisers.

Chapter seven starts the process of helping the reader figure out the best portfolio for them (of the forty-three examples listed in the book, in a full-color section included in the middle).  After answering the questions in chapter seven, you will led to questions scattered throughout the rest of the book (which kind of reminds me of the old ‘Choose Your Own Adventure’ books).  The results you get from all these questions will tell you which of the example portfolios is most appropriate for you.  Chapters eight and twelve list a total of six insights into investing that should help guide you through the investing process, including not letting fees or taxes dictate your investment choices and not to overestimate your investment returns.

The rest of the book is composed of fairly short chapters that touch on a number of side issues.  Chapters nine, ten and eleven cover how to modify the techniques previously covered in the book to save in an employer’s retirement plan, to save for college, or to invest for income.  Chapter 13 cover how to invest through life insurance (hint: just buy a term policy and invest the rest), Chapter 14 covers how to invest through (deferred) variable annuities (hint: they are the best choice in only a limited number of circumstances) and Chapter 15 attempts to deflate concerns that retiring Baby Boomers will cause a stock market crash in the next few years.  The book ends with an Epilogue that reviews the main points made earlier.


Pros: The book is fairly easy to read, with more than a touch of humor.  The investment guide listed in chapter seven can help you to find a highly differentiated portfolio that should be right for you.  The advice provided is general, but should be appropriate for most investors.

Neutral: There are numerous references to other books by Mr. Edelman and comments about his investment planning company, which could be seen as shilling for his company.  Some of the humor also comes across as rather unfunny.

Cons: The suggestions given seem rather self-serving, including to invest in institutional funds primarily.  There is no discussion of alternatives besides ETFs (index funds are glossed over, with a comment to check one of his other books), leaving the reader with the assumption that the only way to avoid the problems of the mutual fund industry is to use a financial planner (like him) who can buy institutional funds.

Overall: The advice in The Lies About Money is largely good, if biased in favor of having you approach a financial adviser to run your investment portfolio.  If you’re a do-it-yourself investor, you’ll likely be put off by the tone of this book as well as some of the specific suggestions; you can achieve most, if not all of the benefits outlined by putting your money into  index funds.  If you lack the time, knowledge, or inclination to run your money yourself, Mr. Edelman makes a good case for hiring a financial adviser, and reading through this book will help to reinforce that idea in your mind.

Personally, as I lean towards running my money on my own, I doubt I’ll be following all of the advice contained within.  But, it was rather eye-opening about some of the problems with mutual funds, including index funds, and I gleaned some insight nonetheless.  So, let’s call it a tentative recommended read, overall.

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