Recommended Books on Personal Finance
Markus Muhs - Oct 09, 2020
I often get asked this question. Usually by do-it-yourself personal finance keeners who find me online, but also by existing clients looking to improve their financial knowledge.
It has always been my overarching goal to help my clients improve their knowledge as well as to just be a tiny factor in improving the financial literacy of the population as a whole through my blog posts and occasional volunteer work.
You might ask, “doesn’t that limit your value to your existing and potential clients, if everyone becomes more financially literate?” On the contrary, I’ve always believed that it’s imperative to a good advisor-client relationship that clients be fully in the know when it comes to their overall strategy, and the investments I put them in. It is when clients are ignorant of their planning, and when they don’t understand their investments, that I run into problems.
So anyway, here I have this blog, where I try to educate my clients and the general public as best I can. Often my topics for blog posts come up from client conversations. Answers to the questions I keep hearing again and again about various registered plans make up most of my RRIF, TFSA, RESP, and LIF posts, for example.
When it comes to what books I recommend, the answer to this question really depends on what aspect of your financial knowledge you’re looking to improve. Early on, my single-answer was always Ben Graham’s The Intelligent Investor, but this book is a tome and while it has many timeless lessons about investing, it isn’t for everyone. There are certainly some easier reads I’d recommend first to help get you in the right mindset for long-term saving and investing.
So anyway, the below list encompasses only books I’ve read, and I certainly haven’t read every personal finance/investing book out there. There are some popular ones omitted which I simply haven't gotten around to reading. This list is meant to complement other people’s recommendations; perhaps you’ll find a book below that no one else recommends, or perhaps there’s some overlap and you now know which books you absolutely must read.
Getting the right mindset
Before you can invest, you need to have wealth, and before you have wealth you need to first establish the right habits to save and accumulate said wealth. The first two recommendations are both easy reads that get you in the right mindset to save and invest.
I mention this book first as it’s kind of the impetus of this blog post, after having finished reading it last week. I want to get the word out there: this is an absolute must-read for all investors, young and old, no matter what stage of life you’re at. Even advisors will get a lot out of this one.
The book was released this year and the Kindle edition currently at $9.99 is impossible to pass up. Literally, make yourself a much better investor and steward of money for the cost of a discount broker trading commission!
Housel is already renowned as one of the best bloggers in the FinTwit community. He has a skill in writing that I can only aspire to in that he can get a lot of message across with relatively few words. Links to his blog posts regularly find their way into my eNewsletter.
Going in, I thought this book would be more focused on behavioral investing, like some of the books I mention in the section below, but what I appreciated is that much more of the discussion was around good and bad habits with money; our general relationship with money.
I also really enjoyed (and learned a bit) the epilogue, which goes into a recounting of financial history since WW2: from government fiscal/monetary policy to consumer trends (and indebtedness!).
Again, if you haven’t read it yet, this one’s an absolute must-read to get yourself in the right money mindset before going on to read about what you invest in, etc.
The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money by Carl Richards
Another money-mindset type of book. This book was actually sitting on my shelf for a good year or two after a fund company gave me a copy. I was reading some other books on behavioral investing at the time and figured this was just yet another one until I finally cracked it open.
I was pleasantly surprised by Carl’s simple explanations, and the theme of the book—as you can tell from the cover—are his “back of the napkin” diagrams that he has been doing for years for the New York Times, and licenses to us advisors via his website (like the one above, used under license).
I also classify this book as more “getting in the right mindset”, like Housel’s book with more pictures, and again a good primer before moving on to any of the books in the following sections.
More on Behavioral Investing
The above give a good primer on behavioral investing and reinforce what I always say, that it’s not what you invest in but how you invest that really matters.
It doesn’t matter as much what funds or stocks you pick, it matters a lot more how you behave in constantly changing market conditions. Did stock market rallies in 2017 or 2019 cause you to take undue risk? Did bear markets in 2008, 2018, or 2020 cause you to flee? Those types of things weigh much more heavily on your long-term returns than whether you choose portfolio manager A or portfolio manager B, or if you keep your costs to an absolute minimum through index funds, or whether or not you owned Tesla shares this year.
In his aforementioned book, Morgan Housel says “How you behaved as an investor during a few months in late 2008 and early 2009 will likely have more impact on your lifetime returns than everything you did from 2000 to 2008”. The same will probably also be the case after 2020’s extreme volatility, both down (fastest ever peak to trough bear market) and up (strongest 50-100 day period ever). Decisions made over the span of February to April this year could have had a huge impact on your investment returns over the past 10 years, and possibly over the next 10 as well.
There are a number of big, well known, scholarly books written on the topic of behavioral investing, but I don’t think it’s as important to know the names of the various cognitive biases as it is to know that there’s something wrong with your brain, and that it’s working against you every step of the way while you try to invest for the long-term. It’s evolutionary: having a brain that evolved to suit our hunter/gatherer “fight or flight” needs over the vast majority of human history, not our much more recent money-managing needs.
Two books that I recommend that do a great job of introducing this all, and extrapolating on the above, are Dr Daniel Crosby’s The Behavioral Investor and James Montier’s The Little Book of Behavioral Investing.
How to Invest
In this category there are literally countless books covering every manner of investment strategy. Many are complete garbage, others are too confined in the historical times in which they were written, in that they might champion certain strategies or factors that happened to be strong in the times when they were written, or are just otherwise woefully out of date.
Few books are truly timeless self-help books on investing.
If you’re investing with the help of an advisor, the book that I highly recommend and have in fact given to most of my clients over the years*, self-published by the author and not available in any book stores or online (at a reasonable price anyway; Amazon and eBay have used copies listed at anywhere from $50 to $hundreds!), is Nick Murray’s Simple Wealth, Inevitable Wealth.
Now on its 20th anniversary edition, the book helps train the reader to think long-term with their investment strategy, overcome their behavioral biases, and work in collaboration with a good financial advisor, instead of against them. It’s an easy read at about 200 pages with a reasonably large typeface, diagrams, and summaries at the end of each chapter.
Ritholtz Wealth’s Josh Brown calls the book “The Book That Changed My Life”, after having read it in 2010. I think it was roughly around that same time when I first read it too and caught on about the importance of financial planning and investment strategy, saving me from going down the dark path of stock picking and investment gambling.
To get a sampling of Nick Murray’s work, subscribe to my eNewsletter and you’ll receive his “Client’s Corner” letter from me monthly. These are concise one-page updates on cutting through all the noise in the markets and the media and sticking with your long-term plan. If you become a client, I'll give you a copy of his book.
For the do-it-yourselfer, as well as clients wanting to understand my largely index-based approach to portfolio management, Jack Bogle’s The Little Book of Common Sense Investing is a must-read. If you only ever read one book on investing and don’t care about all the “mindset” and “behavioral investing” stuff above, you have to read it.
If you just have some extra cash to invest long term, and have no idea what to do with it, this book could end up being the most valuable book you ever read if it keeps you from “playing stocks” or getting suckered into high-cost mutual funds at your bank or through some other fund seller.
You’ll learn, from the late founder of Vanguard Investments and inventor of the index fund, how markets are pretty darn efficient, making it very difficult to beat them by trying to select stocks or paying someone else to do it for you. Simple beats complex when it comes to investing, and the thing we can control—COST—needs to be kept at a minimum. That is, what you pay a good advisor/planner gets you a lot more than what you pay in mutual fund fees.
In this classic video, Bogle rebukes the inane notion that you would ever stop buying stocks and own them forever, or that the outperformance of active funds over the two prior years means anything at all, and that indexing always wins. He finishes with "owning a handful of stocks is not sound investing...and I don't know how to help him or her."
The last book I’ll recommend here, which I mentioned at the beginning, is Ben Graham’s The Intelligent Investor.
When I was still in the personal banker role at a major bank, it was the branch manager of the private wealth division who recommended this book to a group of us personal bankers who were being trained for a new investment-focused personal banking role.
For those completely unaware of who Ben Graham is: before there was Warren Buffett, there was his old boss and mentor Ben Graham. Graham is widely known as the grand-daddy of value investing and fundamental analysis, the latter of which wasn’t really a thing yet when he started investing in the roaring ‘20s and people were simply trading stocks with an aim to sell them to “the greater fool”.
Much of the advice in his book is similar to bits and pieces of all the above books, on saving habits, keeping things simple, behavioral investment, not taking undue risks, etc. To be honest, I haven't actually read the book in over a decade, but the fact that the original version of the book was released in 1949 is an attestation of its timelessness.
This one’s a longer book, and I’d only recommend it when you’re done reading all my other recommendations and really want to go full-bore into this and read a true classic. In the latest versions of the book, WSJ columnist Jason Zweig’s commentary is also well worth the read (as are Zweig’s columns/blogs, whenever you can find them free anywhere online or have a WSJ subscription).
I should note that in some ways the book does show its age. On stock selection, it really falls flat on its face in the age of microsecond information transmission and ultra-efficient markets. You might be disappointed if, after reading his advice on only buying stocks that trade below intrinsic value, you research and find none (or only find really awful companies). For this reason, you’ll want to read Bogle’s book, above, first, and consider that the vast selection of ultra-low-cost index funds of today simply weren't around in Graham's days (he died in 1976, the same year that Bogle incepted the precursor to the Vanguard 500 fund).
What really enlightened me was his discussion of risk, and here his advice can be applied to absolutely every asset class there is. Quite simply, the higher the price of an asset, the greater its risk. Full stop. This goes the same today whether buying a high-flying tech stock, Vancouver real estate, cryptocurrency, or whether you were buying cannabis stocks a few years back. While we are automatically attracted to the high past returns of a particular asset, we have to remember that due to those returns its price is higher now, thus its risk is higher (it has further to fall) and its upside is less. There never are any exceptions to this.
If you’ve actually read this far, I know you’ll have the time to read these all. As mentioned, there are many more great books on personal finance out there, I just wanted to highlight some of the best I’ve read and don’t want this post to get too long. Hit me up on Twitter if you think there are any glaring omissions from this list. Maybe I have yet to read them,and might add to a later revision of this post.
Investment Advisor & Portfolio Manager
*Going back to my days with the bank. As a result, I’m not sure which clients I have given the book to and which I haven’t, so any clients whom I missed, just let me know. I still have a bunch of copies.