Jun 12, 2018

Recommended Read: The Coffeehouse Investor

I've read many personal finance books, but The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On with Your Life by Bill Schultheis didn't register on my radar until a few months ago, even though it's 20 years old. I probably didn't know about it because the title doesn't do anything for me - it makes me think that it's by someone advocating picking stocks while kicking back in a cafe, or maybe advocating investing in coffeehouses. Even the subtitle doesn't tell the full story.

What the book is really about is giving the reader a simple but effective strategy for saving for retirement. I wish the title highlighted that. And I wish I'd read the book twenty years ago, when I first became a lawyer and really began saving for retirement.

The strategy advocated in The Coffeehouse Investor isn't anything new, or at least, it wasn't to me when I recently read the book. The concepts were ones I'd adopted many years ago. But the way the ideas are laid out in The Coffeehouse Investor were clearer and more comprehensive than in any form I'd previously encountered, and my asset allocation strategy would have been different if I'd read this book twenty years ago.

The core concept of the book is to invest in index funds, and avoid undue risk when investing. The explanation in book about the risk posed by inflation is the first one to truly make sense to me. Even though I've known in the abstract about the danger of inflation, this book really taught me why it's so important that the return on investment outpace inflation.

Much, if not most, of the book is spent explaining why any investment other than index funds is certain to have a return of investment below the market average over the long run. It's a little tedious and repetitive in that regard, but extremely convincing. And I appreciate the wiggle room in the overall investment strategy for picking a few individual stocks for fun.

I found the message of the book so powerful that I promptly revisited the asset allocation of all of our investments, and made some adjustments. I got rid of the one non-index mutual fund in our portfolio and distributed those funds to various index funds in our retirement and college savings. (This was around tax time so I was looking to add to my Roth IRA and the boys' Coverdell accounts anyway.)

I would recommend this book to anyone, regardless of age. In fact, the first anecdote in the book, about a man on the verge of retirement who lost his significant savings because he didn't move it out of a risky investment to a safer index fund, is perfect for older investors who need a reminder to be conservative. And as I've already mentioned, the book is one that anyone entering the workforce should definitely read as they start saving for retirement. It's even great for someone like me, who's sort of in-between those scenarios - not just starting out, but still years away from retirement.

Do you have a favorite personal finance book that I should read?

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