• Introduction
• Unit 1: Basic Building Blocks of Successful Financial Management
• Unit 2: Investing Basics
• Unit 3: Finding Money to Invest
• Unit 4: Ownership Investments
• Unit 5: Fixed-Income Investing
• Unit 6: Mutual Fund Investing
• Unit 7: Tax-Deferred Investments
• Unit 8: Investing Small Dollar Amounts
• Unit 9: Getting Help: Investing Resources
• Unit 10: Selecting Financial Professionals
• Unit 11: Investment Fraud

• Study Guide
• Action Steps
• Monthly Investment Messages
• Glossary

Investing For Your Future Monthly Message

November 2009

Rescue Your Money, written by nationally syndicated radio show host and Washington, DC metro area financial planner Ric Edelman, is one of a number of books written recently that addresses issues related to the subprime mortgage mess turned global economic meltdown. Unlike many books of its ilk (e.g., Suze Orman’s 2009 Action Plan), however, Rescue Your Money focuses exclusively on investment-related topics and, specifically, the rebuilding of investors’ decimated retirement savings accounts.

In the Overview, Edelman shares his “secret to successful investing:” buy low, sell high, which is presented on one full page in large bold type. While hardly original, and Edelman acknowledges this, this strategy is a tried-and-true path to wealth. In Chapter 1, One Major Goal You Should Have, Edelman warns readers not to make “beating the market” their investment goal with this wry statement: “In 2008, the S&P 500 lost 38.5%. If you lost only 30%, congratulations! You beat the market.” Instead of focusing on market performance, Edelman advises focusing on personal financial goals, noting “only one thing matters when it comes to investing: achieving financial security. That is your one major goal.”

Chapter 2, The Two Major Obstacles That You’ll Face, describes investors’ two big challenges: taxes (i.e., income, sales, capital gains, property, gift, and estate taxes) and inflation, which erodes the “buying power” of invested assets. Edelman notes that inflation rates are “remarkably consistent” and have averaged 3.2% since 2003, since 1983, and since 1926. He then provides an example of how someone earning 3.1% on a five-year CD actually keeps 2.17% after paying 30% in taxes and loses 1.03% (2.17 minus 3.20) annually due to inflation, or 20.6% over 20 years. For example, $100,000 invested in 2009 would be worth only $79,400 in 2029. At a 3.2% inflation rate, the cost of living (or loss of purchasing power) doubles about every 23 years.

Chapter 3, One Big Question, expounds on the “buy low/sell high” advice and warns readers about the dangers of market timing, investment fads (e.g., Tech stocks), and blindly following advice from financial media. Examples are provided about how each of these actions has disappointed investors. Edelman also cautions that investing in large, well-established companies does not provide “immunity” from losses.

Chapter 4, The Two “Truths” That Prevent You from Investing Successfully, urges readers to take the “long view” of investing by describing how stock market volatility is reduced over time. Edelman notes that “the best way to view the stock market is over decades, not days, weeks, or months.” Over long periods, it has always produced net profits. He also cautions about checking account statements daily and had this advice for nervous investors: “When you notice stock prices declining, don’t be upset. Instead become excited about what lies ahead.” Every past recession in U.S. history has been followed by a profitable bull market.

Edelman discusses the benefits of diversification in Chapter 5, The Secret, and cites research about how it reduces investment risk without necessarily sacrificing returns. He also compares investing to a game of horseshoes, where it is okay to be “close enough,” and advises readers to have a goal of optimizing investment returns instead of maximizing them without concern about investment risk. Chapter 6, The Secret to the Secret, describes how market profits often come in short, often dramatic, “bursts,” making it important to maintain a long-term focus and remain invested to avoid missing these key “best trading days.”

Concerns of retired investors are addressed in Chapter 7, What If You’re Already Retired? Again Edelman warns about the inflation risk associated with an all-cash portfolio and the need for diversification. Chapter 8, The Most Important Part of the Secret, describes how to construct a diversified portfolio, various asset classes that Edelman’s firm uses to develop client portfolios, and why it’s important to avoid mutual funds with high turnover and fees that erode investment returns.

In the Conclusion, Edelman ties previous chapters together by stating: “So now you know the secret to successful investing. Build a highly diversified portfolio consisting of low-cost institutional shares and exchange-traded funds. Buy low/sell high through strategic rebalancing, and maintain a long-term investment horizon.” Readers are urged to actively manage their investments themselves or consider hiring a professional advisor to handle these tasks.

For further information about investing, review the 11 units of the Cooperative Extension Investing For Your Future Web site. To pose an investment question to a Cooperative Extension financial expert and receive an e-mail reply, see www.extension.org/personal_finance.