The 'Five Key Decisions' For Every Investor
ROBERT SIEGEL, host:
We recently noted the passing of Gordon Murray, the retired investment banker who, when diagnosed with a terminal brain tumor, wrote a brief book with his financial adviser Dan Goldie. "The Investment Answer" is their attempt with five key decision to make Wall Street investments understandable and secure for small investors.
Dan Goldie says this project was both personal and inspirational.
Mr. DAN GOLDIE (Financial Adviser): It was a beautiful collaboration. Gordon was just a fabulous partner and friend. And the motivation behind this initially for me was to help Gordon realize his dream of getting these ideas in a book and out to the public. And that happened when I received a phone call from him on June 8th of last year.
He called me and said, Dan, I've just gotten the second brain scan and I now have new tumors and they're inoperable. I have six months. And I immediately said to him, without thinking, let's write that book that you've always wanted to write.
SIEGEL: One of the, I think, most striking bits of advice that you and Gordon Murray gave people was in the choice between being an active investor who's very involved in moving money around and making decisions and being passive, in effect, trying to hook into a market that you can generally feel confident about let it carry you forward - be passive is a better decision.
Mr. GOLDIE: Yes. Those investors will actually over the long run do better than the rest who are trying to actively manage their portfolio and generally incur - in doing so, they incur more expenses, higher taxes and those activities that reduce the return.
So the ironic thing is that usually with investments, over the longer haul, the harder you try to do better, the worse you do. It's almost like a - I don't know, I imagine a swimmer who's swimming against the grain and working too hard instead of stroking smoothly. I think it's similar with investments.
SIEGEL: But what's beyond ironic about that and what's astonishing about that is the industry that has grown up to advise people, to help people, to guide them in this process where what you're saying is, get in the middle of the mainstream and let the current carry you along and you'll do best.
Mr. GOLDIE: You're right. The industry is built around a different idea. And of course the industry makes a lot more money advising people to trade and be more active. So clearly there's a financial incentive to promote that idea. But, fortunately, for an individual investor who is informed, there is an alternative.
SIEGEL: OK. The five decisions in a nutshell. Run them down for us.
Mr. GOLDIE: First, do you invest on your own or do you hire help? And if you decide to hire help, whom do you hire? Decision two: The asset allocation decision is perhaps the most important decision you make. So, how do you divvy up your investments between stocks, bonds and cash? Number three, the diversification decision. How do you divvy up the money within each of those categories of stocks, bonds and cash? Fourth decision is do you invest actively or passively? And the fifth decision is, do you rebalance and if so, how?
SIEGEL: I noticed that in 1998 you co-authored an earlier book, "The Prudent Investor's Guide to Beating Wall Street at its Own Game." How different is the guidance from 1998 to 2011?
Mr. GOLDIE: Well, the books are very different. The guidance, I would say, is essentially the same. Although, in those years, some advancements have been made in understanding diversification benefits and some additional asset classes have come about. And of course emerging markets a lot bigger now than they were then.
So there are some subtle differences in the investment strategy. But essentially, the idea is unchanged. And by design, we made "The Investment Answer" relatively short and as clear as we could possibly make it. We wanted this to be a book that could be understood by any investor. And we're hoping that a lot of investors who otherwise would not buy an investment book will pick this one up.
SIEGEL: Well, Dan Goldie, thank you very much for talking with us today.
Mr. GOLDIE: Robert, it's a pleasure.
SIEGEL: So, Dan Goldie, who along with the late Gordon Murray, wrote "The Investment Answer: The Five Key Decisions Every Investor Needs to Make."
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