Wednesday, May 23, 2007

Book Review: All About Index Funds: The Easy Way to Get Started

All About Index Funds: The Easy Way to Get Started by Richard A. Ferri was the third book I read this summer, and I must say, it was a bit of a laggard compared to the other two. I am not very to motivated to write about this book because readers could find the same information on Wikipedia and other common investment sites, but I write on in an effort to convince readers to seek other pieces of financial literature.

The book has several sections that introduce mutual and index funds, offers some notes about asset allocation with these funds, evaluates fund performance, the array of different types of funds, and the future of these investment vehicles.

What a typical investor may gain from this book is a better understanding of the difference between mutual and index funds. A mutual fund is run by a manager who sticks to an asset selection strategy, as specified in the fund's prospectus, and is evaluated on the fund’s overall performance. An index fund tracks an index, or collection of a particular set of securities, and is evaluated on the accuracy of imitating that index’s returns. An investor who wants to target a specific group of stocks may want to look into investing in an index fund who tracks that particular group of stocks. If an investor is looking toward achieving above average returns, may look into investing in a speculative mutual fund.

Personal Takeaways:
I think the most important takeaways from this book relate to asset allocation and fund fees. An investor should use asset allocation to achieve his/her return goal. This investor could use a variety of funds to achieve his/her unique asset mix ideal for the investor's target return. In addition to using allocation to address investment goals, an investor should consider fees when choosing an investment vehicle. Index funds are almost always cheaper than mutual funds, which means that they actually give you better overall returns (on average). Many times, these funds are also more tax friendly, another important part of assessing your overall returns. Still, these benefits are highlighted all over the web; no need to read these chapters to uncover potential secrets.

I think a potential financial planner may enjoy this book if he/she does not have his/her facts straight already, but my overall opinion on the book directly correlates with my positioning of this post. Readers can appreciate that I strategically wrote this review on the third book I read this summer before the review I am going to write for the second book I read. This position will allow readers to simply pass over this post, much like they should pass on this book.

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