Here’s something I should have put together ages ago, considering the number of people who have asked me for investment book recommendations. 

I’ve read more than 300 personal finance books over the past twenty years.  Perhaps I’m a bit of an addict.

  • For Beginners

These are the books I’d recommend for people who have never read an investment book before.  But don’t mistake simplicity for something substandard.  Following the strategies espoused in these books will, after all taxes and costs, have you beating at least 90% of professional money managers over your investment lifetime.  That’s a fact. 

The New Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get on with Your Life

In an easy-to-read conversational voice, financial planner Bill Schultheis proves why he’s considered one of the heroes of the financial service industry.  Promoting a low cost, index fund solution to investing, he guides his readers as if he’s your affable neighbour, explaining the process over coffee.  You can enjoy this book from cover to cover in a single afternoon.  I’ve gifted many copies of this book at my index fund seminars.  I think you’ll like it.

The Lazy Person’s Guide to Investing: A Book for Procrastinators, the Financially Challenged, and Everyone Who Worries About Dealing With Their Money

Paul Farrell ably introduces this book as something his wife encouraged him to write.  As a women “whose eyes usually glaze over” when he starts to talk finance, you get the idea, right away, that Dr. Farrell’s book is aimed at a broad audience, peppered with a fun writing style that’s missing in the vast majority of personal finance books.  His message is the same as Bill Schultheis’ but his voice is a tad cheekier.  This could be the first and only investment book you’ll ever have to read.

The Smartest Investment Book You’ll Ever Read: The Simple, Stress-Free Way to Reach Your Investment Goals

Cheekier still, but every bit as good, is Daniel Solin’s book, The Smartest Investment Book You’ll Ever Read.  This immodestly titled book is comprised of only 154 pages, and this leading securities arbitration lawyer guides readers to see that again, index fund investing gives the highest statistical chances of success.  With a spacious format, it’s another book you can read in an afternoon while learning how the industry of actively managed mutual fund investing is rigged against the average investor.  Like The Lazy Person’s Guide to Investing and The New Coffeehouse Investor, it’s going to make you smile from time to time, if you don’t chuckle out loud. 

The Elements of Investing

Perhaps the shortest book of them all, The Elements of Investing was written by investment legends Burton Malkiel and Charles Ellis.  As the bestselling authors of A Random Walk Down Wall Street  (Malkiel) and Winning the Loser’s Game  (Ellis) they’ve teamed together to produce an investment book that’s far simpler to understand than either of their former masterpieces.  From what I’ve learned, giving financial seminars, the average person has difficulty understanding terms and jargon that most financial writers take for granted.  As great as both of these gentlemen’s other books are, this one is far easier for the average reader to understand.

  • For Intermediate Investment Readers

The Only Guide to an Investment Strategy You’ll Ever Need 

I enjoyed Larry Swedroe’s book, The Only Guide to an Investment Strategy You’ll Ever Need  and as the title suggests, I think he’s right, although it’s slightly more academic than the previous four books I mentioned.   After reading one of the four books I listed above, if you’re still not convinced, and/or you want more meat, then this could be the book for you.  Written in 2005, it has the qualities of a great book—because it’s timeless.  Read this book twenty years from now, and the theory behind it will remain the same: solid, academically rigorous, relevant and accessible to the average reader.

Swedroe’s new book, The Quest For Alpha: The Holy Grail of Investing comes out on February 2, 2011.  I haven’t read it yet, but based on the title, you can probably guess the symbolism behind the Holy Grail.

The Little Book of Common Sense Investing : Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books. Big Profits) 

Written by a man named by Fortune Magazine as one of the four investment giants of the 20th century, Bogle packs a powerful punch with this little 214 page book.  Showing how index funds are superior investment vehicles, he loads the book with evidence and experience drawn from more than 50 years in the investment field.  I’ve gifted more than 40 copies of this little book to my colleagues, but I’ve listed it under “intermediate” as a reader, because it has terms that many of my college educated colleagues couldn’t understand, and it had my dad (a fairly well-read fella) running for the dictionary a number of times.  Bogle is an academic.  But he’s brilliant, a clear writer, and he’s definitely fighting for the little guy.  With some luck, I hope to be having lunch with the great man during the summer of 2011 when I visit my in-laws in Pennsylvania this year.  My fingers are crossed.

The Four Pillars of Investing: Lessons for Building a Winning Portfolio  and The Investor’s Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between.

Written by the legendary finance writer, William Bernstein, these books both give an extremely solid investment foundation.  If we were to ask Mr. Bernstein himself, he’d probably suggest that we read The Four Pillars of Investing first, and The Investor’s Manifesto second.  In the first book, he thoroughly discusses how people madly become euphoric when fad-like investments rise in value without solid fundamentals to back them up.  And in his second book, he shows how the same emotional madness can sabotage investor’s accounts when the markets drop in value.  What’s more, he does it with an ever-improving flair for imagery and humour:

 “Your primary training tool is the rebalancing process, which forces you to sell high in the good years and to buy low when there is blood in the streets.  In the really bad years, such as 2008-2009, this will mean pouring large amounts into falling equities, when your friends and family are running around like decapitated poultry.

Both of these books, of course, promote indexed investing as well.

  • For Advanced Finance Readers

For the most extensively researched books on indexed investing, nothing really compares with John Bogle’s updated 10th anniversary edition of Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor  and David Swensen’s Unconventional Success: A Fundamental Approach to Personal Investment.

These are two of my favourite investment books, but unlike some of the books above, they aren’t entertaining for the average investor.  And that’s fine.  Investing isn’t meant to be fun.  The same message is here that you can read about in Bill Schultheis’ ultra-simple CoffeeHouse Investor books  but the evidence here is simply awe-inspiring.  What’s interesting is that David Swensen, Yale University’s endowment fund manager, didn’t intend to write his book, Unconventional Success, about indexed investing.  But the more he researched, the more he realized that the financial service industry exploited individual investors.  Like the other great authors above, he offered a fabulous solution.

  • More To Come

For those who can’t help but pick a few of their own stocks, I have a few book recommendations that might help.  They’ll be coming up in a follow-up post.  Just keep in mind that the odds of finding the Holy Grail are low.