In Investment, Channel Your Inner 2nd Grader

Perhaps simple principles, not complicated ones, are all we need to make good financial decisions. Denys Poliakov/Shutterstock

So how is that investing for the future coming along? What, you’re confused? I understand. Most of us are total novices. Unfortunately, what do we do? We let others make our decisions for us, thinking they are so much smarter because they are “professionals” or TV commentators.

Recently, I was drawn to a book—mostly because our grandson Sam is a newly minted second grader—that was simple to read, easy to understand, and quite charming. In “How a Second Grader Beats Wall Street: Golden Rules Any Investor Can Learn” by Allan S. Roth, we follow the story of Kevin Roth, the author’s 8-year-old son, to discover exactly how simple it can be to become a successful investor.

By second grade, Roth contends, we’ve learned simple and truthful lessons about the world around us. As life goes along, however, what we continue to learn is less about making us smarter and more about making us outsmart ourselves.

By adulthood, we’re feeling that serious things—such as money—are too important to deal with simply. And that’s when things take a turn. Here are the dumb things Roth says that many adults do with their money:

1. They love to buy high and sell low. They buy after the market is up, panic and then sell when the market falls.
2. They play important games without understanding the rules. Kids know that you can’t win if you don’t know the rules. The same goes for investing in something no one can understand.
3. They believe anything they want to believe. People gave Bernie Madoff $50 billion without knowing what he was doing with the money.
4. They pass over the low-hanging fruit in favor of the fruit that is way out of reach, if it is reachable at all. They miss the easy stuff that will make them money, no matter what the market does.
5. They think strangers want to help them. We teach our kids about stranger danger, then hand over our nest egg to strangers who claim they know best.
6. They constantly complain about taxes but pay more than they need to. Why do adults go out of their way to pay more?
7. They lend money to people who they know can’t pay it back. They sell the loans to other adults and think they are going to get their money back.
8. They follow the herd. Like heat-seeking missiles, they go after whatever has been hot.
9. They watch too much financial TV. Conventional wisdom tells us that a little knowledge is a dangerous thing, but so is too much information. It’s foolish to assume that the gurus on TV have a good track record and are giving good advice.
10. They spend their investing lives in a futile attempt to disprove second-grade arithmetic. Ten minus 2 equals 8. If the market earns 10 percent and they pay helpers 2 percent of that return, they won’t end up with 12 percent.

Here’s the bottom line: You are in control of your investments. This book will help you cut to the chase, connect with your inner second grader and take control of your future!