Carlson, R. C.(2005). The new rules of retirement: Strategies for a secure future. New York: John Wiley & Sons.

In creating a retirement plan, the author recommends that each individual starts with "an estimate of monthly or annual spending in the first year in retirement. After that the length of retirement must be estimated. Then the spending estimate should be adjusted for inflation over the length of retirement. Finally, an estimated investment return is used to estimate how much money should be accumulated at the start of retirement" (p. 27). 

The author suggested certain steps to ensure a more accurate forecast: "count on inflation . . . key issue is which inflation rate to use . . . don't underestimate longevity . . . don't overlook all possible income sources . . . make more than one estimate . . . check the numbers regularly" (p. 39). 

Although the book covers other topics, such as social security, trusts, and IRAs, I will reserve them for future postings. 

 

Kiyosaki: Rich Dad's Prophecy 2002

In typical Kiyosaki fashion, he prognosticated an impending financial collapse and wrote this book to explain how investor's can avoid the disaster. In the Introduction, he claimed that the book had six basic messages: "to remind all of us to be vigilant . . . about the flaw of ERISA . . . to see the world today with a true financial perspective . . . to ask yourself if you're truly ready for the future . . . to offer some ideas on what you can do to prepare for the biggest stock market crash in history . . . to let you know that you may have up to the year 2010 to become prepared . . . to let you know that you will probably be better off financially, if you actively prepare" (pp. 6-7).

ERISA, according to the author, caused employees with 401(k), 403(b), and other plans to plot their own financial future and rely on the vagaries of the stock market, fluctuating from business cycles. ERISA resulted in the change from DB plans, defined benefit, to DC, defined contribution, plans. The first, defined benefit plans, specified the amount an employee would receive from the length of employment and the term of service. Although not related to a company and regulated by the government, social security conforms to the definition of a defined benefit plan. In contrast, the DC plan returns to employees the amount of contributions, if any, that they have made to the plan. Companies can switch from DB to DC plans, forcing retirees to adjust to the transition. Many workers have not made contributions to their DC plans and, therefore, face a lifetime of employment.

The second lesson, that of the flaws of ERISA, applied to the requirements of the law. It mandates that participants begin making withdrawals to their accounts at the age of seventy, a mass divestiture of funds, which will depress the stock market. Another flaw concerns the source of education of investors--the financial community itself. Kiyosaki concluded that "financial education today is really a sales pitch" (p. 63). The final flaw entails the tax penalties that retirees will incur from early withdrawals from a 401(k). "Portfolio income is primarily from capital gains, which is typically the type of income you will earn from investments. The maximum capital gains rate for investments held for one year is 20 percent. The rate decreases to 18 percent for investments held for five or more years . . . If you hold your investments outside of a 401(k), the tax rate on gains would be 18 percent-20 percent. If, however, you hold these same investments inside a 401(k), . . that withdrawn income is ordinary income, taxed at the highest rate. That means a 401(k) plan doubles your tax rate from the capital gains rate (18-20 percent) to the ordinary tax rate (38 percent).


The author predicted that when retirees start to divest their assets, according to the plan, they will panic and transfer their wealth into cash, with a subsequent decline in the stock market. As an antidote to the impending crisis, Kiyosaki offered his prescription for the future.
He used the Noah's ark analogy in describing a plan of "taking control of the ark" (p. 145). The plan contained three elements, cash flow, leverage, and control. To understand how how his cash flowed, Kiyosaki completed a financial statement every month. He suggested that before a person invests or starts a business, he or she develop and review their financial statement. He recommended that every person, who seeks control of their ark, (1) compile and analyze his or her financial statement, "find a bookkeeper or accountant . . . make an appointment with an accountant or bookkeeper to review your financial statements to make sure you have completed them properly . . . analyze where you are today and what changes you need to make in your investing habits" (p. 153).

Kiyosaki based his system on accounting, which began with four quadrants of E (employee), B (big business), S (self-employed or small business owner), and I (investor). These designations divided the four ways people make money. To educate individuals in each of the quadrants, Kiyosaki illustrated the two fundamental statements of accounting, the income statement and the balance sheet. Contrary to most accounting principles, Kiyosaki defined financial terms as follows: "Assets cash flow money into the income column . . . Liabilities cash flow money into and out of the expense column" (p. 176). He offered this lesson, "the relationship of cash flow between an income statement and a balance sheet that tells if something is an asset or a liability" (p. 176). Therefore, what a person perceives as an asset can become a liability.

Similar to the distinction between assets and liabilities, Kiyosaki distinguished good debt from bad and good interest from bad. Good debt created wealth; bad debt purchased a car. Good interest generates tax-free income; bad interest penalizes the individual with taxable interest.

Businesses start small and grow large. Kiyosaki invests in PREPs (private real estate partnerships, a private partnership that is formed to buy a large real estate investment, such as a storage warehouse) and in triple net lease real estate ("triple net means that in addition to their lease payment, the tenant pays for the maintenance of the building, the insurance, the taxes, and structural repairs"). Kiyosaki warned that these investments necessitate large down payments and do not provide a commission for brokers, who seldom recommend them.

Kiyosaki urged readers, who sincerely want to control their ark to do the following:
"Challenge yourself to find a minimum of five hours a week to devote to building your ark . . .
"Visit a real estate broker to inquire about investment properties. Spend dinner one night a week discussing new business ideas. Attend franchise shows in your area. Attend local seminars on real estate, building businesses, or investing in the stock market. Decide which asset class you want to start with: business, real estate, or investing in stocks and/or options" (p. 226).

Vigilance means constant attentiveness. An attentive person remains true to his or her word; he or she will "keep an open mind and . . . ears tuned for change . . . learn to read financial statements . . . use technology . . . watch for bigness . . . watch for changes in the laws . . . watch for inflation . . . pay close attention to government's handling of its social programs (pp. 224-226).

To build the ark, perform the following tasks:
Grow your own company
Name your business
Begin to seek funding sources
Search for outside advisers
Select your business entity and form it
Obtain any necessary licenses and permits
Set up a relationship with you banker
Protect proprietary information
Write a business plan
Select your location
Form your service procedures
Plan ahead for bookkeeping, accounting, and office systems
Decide on pricing strategies
Determine employee needs
Prepare your marketing plan
Seek insurance coverage
Address legal issues
Fine-tune your cash flow budget
Set up your office
Hire employees
Announce your business
Buy a company
Buy a franchise
Join network marketing
Entry cost is low and there are training programs to help you succeed. The companies are typically based on direct sales with home-business opportunities
Invest in Small Real Estate Properties

Kiyosaki suggests that investors strategize to become rich, according to his definition of rich, protect themselves from extreme market gyrations and crashes, and diversity. For adequate leadership, he instructed investors to have a team of advisers, to meet with them regularly, to ask questions and make decisions, to learn from mistakes. As to areas for meaningful self-advancements, Kiyosaki advised investors to "Invest some time finding the long- and short-term reasons why you want to learn something . . . Invest sometime in learning the technical knowledge required to achieve your goals . . . invest some time learning via real-life trial and error" (pp. 263-264). "Stock options investing . . . sales and sales training . . . real estate investing . . . building a business . . . raising capital" (p. 265).

Ken Fisher: The Ten Roads to Riches

Ken Fisher wrote a lively 'how to' book on getting rich. Unlike most books, which present only one formula, Ken offers ten: "manage other people's money, marry rich, be a sidekick, be an athlete or entertainer, become a CEO, invest in real estate, enter the legal field, start a business, invent income, and save and invest wisely" (p. xiii). No matter which route you choose, note the list of books on page 120 on selling yourself, a fundamental skill for any path.
If you find yourself in a leadership position, Fisher urged readers to lead from the front, acting in ways that followers can emulate--working the hours that they work, flying the class that they fly (coach or business), and working as a team. If you occupy the middle class with a average job and salary, Fisher recommends that you save and invest in stock, in up times and down. With compound interest and stock growth, you will increase wealth.

Recommended reading

How to win friends and influence people, Dale Carnegie
You'll see it when you believe it. Wayne Dyer
The psychology of selling, Brian Tracy
The difference maker, John Maxwell
Confidence, by Roseabeth Kanter
See you at the Top, Zig Ziglar
Spin Selling, Neil Rackham

Fisher, K. (2009). The ten roads to riches: The ways the wealthy got there (And how you can too!). Hoboken, NJ: John Wiley & Sons.

Thomsett, M. C.: Annual Reports 101

Thomsett begins his book on annual reports with the question, Transparency, fact or fiction? Acknowledging that annual reports serve a duel purpose of communicating federally mandated financial information and acting for a company as a public relations tool, it rests with the reader to separate the functions, legal, financial, and marketing. Likewise, readers of annuals reports tend to fall into multiple groups, the lay investor and the financially savvy accountants, company executives, and federal regulators.

To verify the validity of the financial information, the reader can apply tests of "capital strength, profitability, and growth potential--whether these key factors are highlighted in the material that the company choose to show you or not" (p. 2). Therefore, the author answers his initial question with an emphatic 'no'. By educating the reader on basic accounting principles, focusing on the subtleties of the annual report footnotes and its organization, and explaining the manipulations of auditors, the author attempts to increase of transparency of these compliance documents.

Annual reports represent the final stage of a three-step accounting process, bookkeeping, decision making, and reporting. Thomsett concentrated on three reports, the balance sheet, summary of operations (income statement), and the statement of cash flows.

Three areas of financial statements, working capital, capitalization, and profitability, employ ratios.

"1. Working capital
The current ratio compares current assets and liabilities
The quick assets ratio is similar to the current ratio, but without inventory
Inventory turnover compares inventory and direct costs.

2. Capitalization
The debt ratio shows the sources from which operations are funded

3. Profitability
Gross margin compares gross profit to revenues
Expense level is a study of expenses as a percentage of revenue.
Net return compare earning to revenue" (p. 55).

"In addition to the ratio in thee three classification, you can learn a lot by checking dividend yield and the consitency of dividend paid over time, the well known P/E ratio, and some technical indicator, such a the 52-week price range and a review of the trading range" (p. 55).

The working capital ratio indicates the size of a company's pool of cash, its liquidity needed in order to function--pay debts, meet payroll, buy inventory, expand.

Formula Current assets
Current liabilities = x to y
"A general standard for the current ratio is 2 to 1. A company is considered to be in good shape if its current ratio is 2 to 1 or better" (p. 56).

The quick asset ratio, a variation of the current ratio, excludes inventory. "The general standard defining a 'good' level for the quick asset ratio is 1 to 1. So if the quick assets are equal to or higher than the total current liabilities, that is acceptable" (p. 58).
Another dimension of working capital, inventory turnovers, reflects an average based on average inventory levels.

Formula Direct costs of goods sold
Average Inventory = Turns
"There is no single standard for an 'acceptable' number of turns. However, by studying a corporation's inventory turnover over time, you can spot trends . . . in the best of all worlds, turnover would remain steady even when revenues grow substantially. However, there is a tendency for turnover to slow down with greater volume" (p. 60).

"Captialization is simply the funding of a company. It comes from two general sources. Equity is provided by investors, who expect dividends and stock price appreciation. Debt comes from lenders, who expect periodic interest payments and repayment of the amount loaned" (p. 61).

Formula long-term debt to equity ratio
Long-term debt
Long-term debt + stockholders' equity = long-term debt to equity ratio

"Outcomes are not always what they seem. It is possible to conclude that working capital is healthy without realizing that the ratio has been created by growth in long-term debt. Invariable, apparent trends have to be confirmed by also checking other, related trends.

Profitability

Formula Gross Margin Gross profit
Revenues = Gross Margin
"Gross margin becomes meaningful only if and when an established level changes . . . it should remain constant" (pp. 65-66).

Formula Expense level Expenses
Revenues = Expense level

Formula Net operating profit
Revenue = Net return

Formula Earnings per Share Net operating Profit
Total shares outstanding = EPS

Formula Dividend Yield Dividend paid
Share price = Dividend yield
"Dividend yield is meaningful only in relation to the price you pay for stock. After that, changes in the yield don't affect you.

Formula P/E ratio Share price
EPS = P/E
"The P/E ratio can be very unreliable unless it users current information for both sides of the equation" (p. 71).

Technical Indicators

Thomsett defined fundamental and technical indicators as follows, "the financial, also called fundamental, indicators include revenues, earnings, capitalization, and dividends declared and paid . . . the nonfinancial, also called technical, indicators include high and low stock prices during the year and the year-end stock price per share" (p. 72). In his 'Key point' box, the author made the following point, "the 52-week high/low can mislead you and cause you to reach an inaccurate conclusion. You should also review a 52-week price chart to spot the trend within that trading range"m (p. 73). He listed these reasons to question the technical indicator, the trading range might include a nonrecurring spike . . . the price might be showing an upward trend . . . the price might be showing a downward trend . . . volatility in price might make it impossible to spot a trend" (p. 73).

The first 90 days: Critical success strategies for New Leaders at all levels

Michael Watkins provided a road map for new managers who lead organizations in transition, explained the types of transitions firms undergo, and detailed the actions mangers should take to maximize the initial phase of the process. Eight challenges face managers in this context. He or she should "promote yourself . . .accelerate your learning . . . match strategy to situation . . . negotiate success . . . achieve alignment . . . build your team . . . create coalitions" (p. 212).

Watkins, M. (2003). The first 90 days: Critical success strategies for new leaders at all levels. Boston, MA: Harvard Business School Press.

Robert Shiller. The subprime solution : How today's global financial crisis happened, and what to do about it

After describing the history of all types of bubbles, Shiller proposed a number of solutions of three general types to alleviate future bubbles, information technology, market-based instruments, and risk-management institutions. Among the technology solutions, Shiller elucidated the capabilities of mathematical finance, which exposed the nuances of risk management. This capability demonstrated how both sides of a contractual relationship can win, a critical aspect of agency theory. Agency theory "explains how to motivate agents to behave as much as possible in the interest of all parties to a transaction" (p. 188). Shiller promoted information technology to achieve a number of goals: "comprehensive financial advice . . . financial product safety commission . . . standardized default-option financial plan . . . improve the disclosure of information . . . improve financial databases . . .new system of economic units of measurement" (pp. 121-148). The units of measurement that Shiller and other devised "would be defined for many common economic values including income, profits, and wages. But the greatest importance would be new units of measurement for inflation . . . an inflation-indexed unit of account" (p.141).

Of the market solutions, Shiller formulated new markets that would address risk. To minimize real estate risk, the source of the 2008 bubble, Shiller suggested a single-family home-price futures market, to short real estate without selling a home. Chicago Mercantile Exchange (CME) currently has such markets, which "have been predicting large declines in home prices in the United States almost since the markets' inception in May 2006" (p. 152). Other markets Shiller mentioned included "markets for long-term claims on incomes--individual incomes, incomes by occupation, incomes by region, and national incomes" (p. 154). These markets would reflect "livelihood risk" (p. 154). "Markets for occupational incomes--such as futures, forwards, swaps, and exchange-traded notes--will ultimately make it possible for people to hedge their life income risks" (p. 154). Shiller advanced another financial instrument, a "perpetual debt that pays a share of GDP as dividend" (p. 154). Dividends would fluctuate based on the economic growth or contraction of a country. Shiller argued that "in economic slowdown, the government would find that the burden of interest on the national debt would, in effect, fall below expectations. It would thus have more resources available to deal with the crisis" (p. 155-156).

Among the risk-management institutions, Shiller listed continuous-workout mortgages, home equity insurance, and livelihood insurance. With demographic data to establish criteria, issuers could minimize the possibility of individual abuse and manipulation.

Shiller, R. J. (2008). The Subprime solution: How today's global financial crisis happened, and what to do about it. Princeton, NJ: Princeton University Press.

Ellis. Winning the Loser's Game: Timeless Strategies for Successful Investing

Ellis established the basic premise that institutional investors cannot beat the market, for they compose the market. He differentiated a winner's game from a loser's, "in a winner's game the outcome is determined by the correct actions of the winner. In a loser's game, the outcome is determined by the mistakes made by the loser" (pp. 4-5). Ellis ascribed the reason for losing to the institutional investors, "they are the most important part of the problem" (p. 8). Ellis continued by asserting, "active investing is at the margin always a negative-sum game. Changing investments among investors would by itself be a zero-sum game, but costs such as commissions, expenses, and market impact must be deducted. Net result: a negative-sum game" (p. 9).

Ellis interjected an optimistic note, in this rather bleak picture, that "every investor can be a winner. All we need to do to be long-term winners is to reorient ourselves and concentrate on realistic long-term goal setting, sound policies to achieve our goals, and the requisite self-discipline, patience, and fortitude required for persistent implementation" (p. 10).

Ellis identified four strategies investors employ in their attempt to beat the market: "1. Market timing 2. Selection of specific stocks or groups of stocks 3. changes in portfolio structure or strategy 4. An insightful, long-term investment concept or philosophy" (p. 11). None of these proved to create a winning option, according to Ellis. He proposed the alternative of index funds, which had the advantages of "higher returns . . . lower fees . . . lower operating costs . . . lower taxes . . . lower risk of errors or blunders . . . lower anxiety about errors or blunders" (pp. 30-31).

Regarding the congruence between investment goals and strategy, Ellis observed a paradox. He saw a discrepancy between an investment manager's short-term actions and an investor's long-term objectives. He urged investors to have their advisor accomplish four tasks when seeking investment advice: "(1) understanding the client's real needs, (2) defining realistic investment objectives that can meet the client's realistic needs, (3) establishing the right asset mix for each portfolio, and (4) developing well-reasoned, sensible investment policies" (p. 43) that match objectives, strategy, and adherence to the strategy. Observing these principles improve the potential of portfolio performance, "policies that position the portfolio to benefit from riding with the main long-term forces in the market" (p. 43).

Six Questions
Ellis enunciated six questions each investor should ask an investment manager.
"First, what are the real risks of an adverse outcome, particularly in the short run . . .
Second, what are the probable emotional reactions of clients to an adverse experience? . . .
Third, how knowledgeable are you about investments and the vagaries of financial markets? . . . Fourth, what other capital or income resources does the client have and how important is the particular portfolio to the client's overall financial position? . . . Fifth, are there any legal restrictions on investment policy? . . . Sixth, are there any unanticipated consequences of interim fluctuations in portfolio value that might affect policy" (pp. 46-47).

Benign Neglect
The two factors that influence investment performance include time and risk. Ellis described time as the "Archimedes lever in investing" (p. 55). He continued, "the trade-off between risk and reward is driven by one key factor: time" (p. 55). These two factors determine the ratio of fixed income investment and equity investment. Risk entails three elements: "the real risk-free rate of return . . . a premium over the risk-free rate of return to offset the expected erosion of purchasing power caused by inflation . . . a premium over the inflation-adjusted risk-free rate of return to compensate investors for accepting market risk" (pp. 67-68). Furthermore, Ellis explained four types of risk: "price . . . interest rate risk . . . business risk " (pp. 67-68). The forth type of risk, market risk, "market risk pervades all investment. It can be increased by selecting volatile securities or by using leverage, and it can be decreased by selecting securities with low volatility or by keeping part of a portfolio in cash equivalents. But it cannot be avoided or eliminated. It is always there. Therefore, it must be managed" (p. 68). Two actions add a degree of control: "deciding deliberately what level of market risk to establish as the portfolio's basic policy and (holding to the chosen level of market risk" (p. 73).

Ellis stressed the advantage of index funds: "Such a fund provides a convenient and inexpensive way to invest in equities, with the riskiness of particular market segments and specific issues diversified away" (p. 70).

Writing an investment policy
Defining an investment policy, Ellis considered the fundamental task of the investor. An investment policy “is to establish useful guidelines for investing that are genuinely appropriate to the realities both of your own investment objectives and of the realities of the investment markets. These are the internal and external realms of investing, and investment policy must be designed to work well in both realms” (p. 89). The policy articulates the investor’s risk tolerance, objectives, and the equities that fit with the risk and objectives. The investment advisor explains the external factors, the markets and economic realities that affect the investor’s goals. “Investment policy is the explicit linkage between your long-term investment objectives and the daily work of your investment manager” (p. 90), stated Ellis. He recommended that the investor have the policy in writing.

Ellis elaborated on three policy facets: “the level of market risk to be taken . . . whether the level of risk is to be sustained or varied as markets change . . . whether individual stock risk or group risk is to be taken or avoided and the incremental rate of return which such risks, when taken, are expected to produce in the portfolio” (p. 90). If an investment advisor differentiates himself from the general market, that is an index fund, the investor needs to understand how he differs. Ellis stipulated how an advisor might differ: “by betting heavily on a few stocks, by favoring a particular stock market sector, or by investing heavily in cash if he thinks stocks are overpriced” (p. 90). Furthermore, understanding his execution, “whether continually as part of a long-term strategy or occasionally as a short-time tactic . . . and, most important, why he is confident that he will achieve favorable incremental results by taking these actions” (p. 91). With this insight, an investor can assess the advisor’s competence.

Ellis offered five standards by which an investor can evaluate an investment policy:

“1. Is the policy carefully designed to meet your real needs and objectives?
2. Is the policy written so clearly and explicitly that a competent stranger could manage the portfolio and conform to your intentions?
3. Would you have been able to sustain a commitment to the policies during the most troubling capital markets that have actually been experienced over the past 50 years—when conventional wisdom was surely most opposed?
4. Would the investor or professional investment manager have been able to maintain fidelity to the policy over the same periods despite intense daily pressure?
5. Would the policy, if implemented, have achieved your objectives?” (pp. 94-95).

Performance measurement, chapter 14 of Ellis’ work, has two basic principles—that the market, similar to any statistical phenomenon, tends to conform to the regression to the mean” (p. 97). The second principle stipulated that an investor should compare the portfolio with those of the same type—small cap with small cap and growth with growth.
Ellis reiterated the need to measure long-term results to determine true success.

Managing Managers
Ellis described how knowledgeable investors manage their advisors. The investor should attend to formulating an investment policy, internally and externally, in keeping with his or her decision-making process. Internal and external understanding constitutes the first and second steps of the process. Third, find a manager to execute your plan. Fourth, stick to the plan regardless of external realities. To maintain the relationship, Ellis suggested quarterly or semiannual meetings with an agenda, all documents. Ellis continued, “each meeting should begin with a careful review of the investment manager’s mission—the agreed-upon investment policies of the portfolio through which the manager is expected to accomplish the mutually intended long-term objective—to see if any modification in either objective or policy is appropriate” (p. 116). If not, reaffirm the policy document. “Discussion of specific portfolio operations—purchases and sales of specific securities—should be on an exception basis and should be brief” (p. 116). “The balance of the meeting time, usually another half hour, can best be devoted to a thoughtful and detailed discussion of almost any topic of importance to both the client and the manager as a way to increase shared understanding” (p. 117).

At least once a year the main topic should be a candid review—led by the client—of the client’s overall financial situation and the context in which the investment portfolio fits” (p. 117).

A written summary of perhaps three to five pages should be prepared and distributed after each meeting and kept for future reference. One suggestion would be to have alternating meetings summarized by the client and the investment manager” (pp. 117-118).

Questions an investor should ask for an actively managed portfolio include: “which managers will outperform the market for many years into the future? . . . can you identify the future’s favored few today? . . . will you make the right decisions and take action at the right time? . . . if you do select a superior manager, will that manager stay superior or will the assets managed grow? . . . (p. 120).

Among the rights of a client investor, according to Ellis, the investor “can select specialist managers skilled in each of the several different kinds of investing wanted . . . clients can diversity against the risk of one manager’s investment concept being out of tune with the overall market” (p. 122). Instead of many managers to diversity and reduce risk, Ellis pointed to index funds as a means to accomplish the same end.

The various decision-making sections of a portfolio entail equity mix, active versus passive management, advisor choice, portfolio policy and alternations. Emphasis on section 1, equity mix, increase the odds of success in comparison to portfolio alternations, section five.

Individual Investor’s 10 Commandments
1. “Don’t speculate
2. Save
3. Don’t do anything in investing primarily for “tax reasons”
4. Don’t think of your home as an investment
5. Never do commodities
6. Stockbrokers . . .their job is not to make money for you . . . their job is to make money from you
7. Don’t invest in new or “interesting” investments
8. Don’t invest in bonds because you’ve heard that bonds are conservative or for safety
9. Write out your long term goals
10. Don’t trust your emotions” (pp. 141-142)

Concentrate your investment in index funds for 401(k) plans.

Questions to Ask to Plan for the Future
“During retirement, how much income do I want to have each year in addition to Social Security and my employer’s pension benefit? . . . How many years will I be I retirement? What spending rule am I ready to live with and live by? . . . How much capital will I need to provide amply for retirement? . . . After insurance, what capital will I need—inflation-adjusted—to cover full health care for my spouse and myself? . . . How much capital do I want to pass on to each member of my family? . . . How much capital do I wish to direct to my philanthropic priorities?” (p. 156).

“Average returns for each type of investment have been approximately as follows:
Stocks 4 1/2 percent
Bonds 1 1/2 percent
T-bills 1 ¼ percent

Steps to Develop a Strategy
“Ask representatives of three organizations this question in writing: ‘Over the past 20 years, the stock market’s average annual total return has been X percent. Starting at the stock market’s present level, what average annual rate of return from today’s market level would your firm expect over the next 20 years? Next question: Over the next 1-, 5-, and 20-year periods, what rate of inflation do you expect?” (p. 157). When you have their answers, take the average of their answers. You’ll now have two crucial estimates of the future: The nominal rate of return for the stock market and the amount you will have to adjust nominal returns to estimate the real (inflation-adjusted) rates of return.
Any funds that will stay invested for 10 years or longer should be in stocks
Any funds that will be invested for less than two to three years should be in “cash” or money market instruments

“Prepare a complete inventory of your investment assets, including the following:
Investment in stocks and bonds
Equity in your home
Assets in any retirement plans"

Ellis' Suggested Reading List (pp. 174-175)

Berkshire Hathaway Annual Reports
The IntelligentInvestor by Benjamin Graham
Bogle on Investing, Jack Bogle
Pioneering Portfolio Management, David Swensen
Why SmartPeople Make Big Money Mistake--and How to Correct Them, Gary Belsky and Thomas Gilovich
The Crowd, Gustave LeBon
The Only Investment Book You'll Ever Need, Andrew Tobias
A RandomWalk down Wall Street
An Investor's Anthology
Wealthy and Wise, Claude Rosenberg



Ellis, C. D. (2002). Winning the loser's game: Timeless strategies for successful investing. NewYork: McGraw-Hill.