Mel Lindauer was one of the founding members of the Vanguard “Diehards” discussion board.  Over the years he has contributed countless hours to the formation and civil interaction of this nationally acclaimed online forum discussion group. 

In addition to that, he has co-authored, along with Taylor Larimore and Michael Leboeuf, “The Boglehead’s Guide to Investing.”

This week he wrote a guest column at titled “The Secret of Wealth . . . isn’t really a “secret” at all.” 

I am keenly aware of the many people in our society who promote “get rich quick” schemes to people like you and me.  Just yesterday, on the financial page, a bestselling author was promoting something like “thirty days to learn my market-trading systems” seminar as a way to build wealth. 

The tragedy of that advertisement is that some folks actually start believing in it as the way to build lasting wealth; both emotional and financial wealth.

Take the time to read Mel’s column.  He won’t offer you a “get-rich-quick” scheme. What he does offer is some common sense financial wisdom that benefits those who are serious about building wealth, ignoring Wall Street, and getting on with their lives.

On Saturday, May 23, columnist Ron Lieber wrote an article in the New York Times titled, Financial Wisdom From a New Graduate.”

In the column, he highlighted the undergraduate financial planning program at Texas Tech University, and invited its top student, Madison Nipp, to offer up her financial wisdom to graduating seniors.

Mr. Lieber’s article got me to thinking about the role “education” plays in financial planning curriculums; specifically what they teach students in regards to investing in the stock market.

Whether it is a middle school, high school, or college investing class, all too often the educational system emphasizes the importance of individual stock selection as a critical component to building a successful portfolio.

It might start as a fun “stock-picking contest” in a high school business class. Next thing you know students are learning the finer points of fundamental securities analysis in a college level finance class.


I have first-hand experience of this, because a close friend of mine is currently enrolled in such a class at a local community college, and that is exactly what they are learning.

The textbook this class uses is titled “Fundamentals of Investments – Valuation and Management” by Jordan & Miller. Here are some fancy-sounding stock valuation models outlined in the book.

  1. The Dividend Discount Model
  2. The Two-Stage Dividend Growth Model
  3. The Residual Income Model

Towards the end of the chapter on Common Stock Valuation, the authors write, “How should you, as an investor, put this information to use? The answer is that you need to pick some stocks and get to work!”

That is exactly what the professor has her students engaged in; a surprisingly sophisticated (simulated) on-line trading program, where each student is given a $500,000 trading account and encouraged to make at least 10 trades a week.

Lost in the textbook is a brief discussion of “efficient markets” where the authors introduce index funds and point out the low percentage of actively managed funds that outperform a benchmark.

I find it interesting that the authors allocate a couple of chapters to “security valuation and selection,” and barely one paragraph to the simple concept of index funds.

To the authors’ credit, as well as the class professor, the curriculum covers many other essential financial planning issues, like identifying the different characteristics of various investments, and the role risk management plays in building portfolios.

The tragedy of a focus on stock picking though, is that students who want to become successful investors are brainwashed at a very early age into thinking that common stock analysis has anything to do with becoming a successful investor.

  1. We teach students to engage in something that is detrimental to their intended purpose of becoming successful investors. It is akin to a personal health trainer teaching you how to smoke on your first visit to the gym.
  2. We encourage them to spend time on a worthless exercise of securities or mutual fund analysis – time that could be better spent pursuing dreams and careers and building wealth in other dimensions of their lives.
  3. Most importantly, instead of instilling confidence in these young investors with their investment decisions, we instill in them uncertainty and ambiguity by introducing to them the complexities of stock market investing. As a result, when one doesn’t invest with confidence, there is a reluctance to invest at all.

Whenever I come across a high school teacher or student who talks about a stock-picking assignment the class is engaged in, I want to scream. If investors are to become more responsible and more successful at planning for their retirement years, they have to start saving and investing earlier in life. Teaching them how to pick stocks at an early age is not the way to get them started in the right direction.

Share your comments on the above reflection – your experiences, your observations, with the way we teach our young students to become responsible with the way they manage money and make prudent decisions when investing in the stock market.

There is a crisis unfolding in America.

People are outliving their money.

Traditional corporate pension plans are underfunded for current participants.

Companies have all but eliminated these traditional pension plans for new employees.

Instead, companies allow you to invest in their self-directed retirement plans, most commonly referred to as 410K accounts.

Many of these accounts have been cut in half by last year’s steep stock market decline.

On top of that, the government is telling us that Social Security looks to be running short of funds three to five years earlier than projected.

You have two choices.

1.  You can do nothing, and the retirement problem everyone is talking about will eventually become your problem.

2.  You can do something about it now and greatly increase your chances of living your retirement-years free from financial worry.

It is all up to you. I am guessing you are going to choose the second choice. OK, so what are some things that you can do about it today so it doesn’t become a problem tomorrow?

1. The first step in addressing a potential retirement shortfall in the future is to take a deep breath and slow our lives down enough today to recognize and admit that we need to be responsible for ourselves. It is all about changing our behavior and attitude towards retirement planning. We are responsible for ourselves.

2. The single biggest factor that will determine your financial success down the road is how you spend your money today. Start keeping track of your expenses. Everyone hates to do this, because it has a “budgeting” mentality. Keeping track of your expenses has nothing to do with a budget, and everything to do with creating a system to keep track. It is that simple.  There are many resources available to help you in accomplishing this important task; a good place to start is by visiting

3. There are many benefits of keeping track of your expenses, like finding out whether you are spending money on stupid things or spending money on things that actually matter to you.

4. Keeping track of your expenses is important because, after creating your financial plan, you know how much money you need to be saving to reach a goal, and you can then determine ways to cut back on stupid expenses or increase expenses on things that matter to you.

5. Keeping track of your expenses is incredibly freeing because it allows you to align your spending with your purpose in life, and permits you to spend more money on things that accentuate your existence here on earth.

What does all this have to do with addressing a potential financial retirement crisis sometime down the road? It is all about taking control of your future today. It means accepting the responsibility of being a CEO and CFO of a company called you.

If you have any suggestions, comments or questions on how you take charge of your financial future today, please feel free to comment on this blog post using our new comment feature. The first three participants will receive a copy of The NEW Coffeehouse Investor book, recently released by Penguin Books!

Carl Richards is the creative genius behind Behavior Gap.  Last week he and I joined together in an exciting new venture to highlight our simple investing wisdom with investors across the nation. 

We created our first weekly Internet radio program/podcast via Blog Talk Radio to discuss, explore, and reveal  a better way to build wealth, ignore Wall Street and get on with your life amid the chaos of financial advice that swirls about us each day.  

Our first program aired on Friday, April 23, 2009, and you can listen to it by clicking this link.  Our next program airs Wednesday, May 27, 1:00 p.m. EST / 10:00 a.m. PST. 

When I created The Coffeehouse Investor 11 years ago, my vision and goal was to introduce three simple principles to every investor in this country who is responsible for building their own retirement portfolio.  The creation of this radio program, which coincidently comes at the same time as the release of the third edition of my book, is an important step in achieving this goal. 

If you can’t listen live, don’t worry.  The radio shows will be available in podcast for download.  Have a question you want answered on the program, and think others will be interested in it as well?   Send me an e mail, and we’ll do our best to comment on it during the next broadcast.

Microsoft announces first yearly sales decline since going public. Alaska Airlines reports a first-bag handling fee. Boeing readies its first new Dreamliner for flight.

These are just a few of the press releases I tuned in to this past week. As a small business owner myself, I find it fascinating to keep tabs on major corporations as they try to stay one step ahead of the competition.

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Leave it to Wall Street to turn a good idea inside out and come up with an investment product that benefits the financial industry at the expense of the individual investor.

In 1976, John Bogle, then chairman and founder of the Vanguard Group, created the first stock index fund available to retail investors. Although his idea was subjected to harsh ridicule by the Wall Street crowd (why buy the market when you can beat the market?), eventually Vanguard’s S&P 500 index fund (symbol VFINX) grew to be the largest stock mutual fund in the business.

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Whether it is funding a college education or living your retirement years free from financial worry, it all comes down to the decisions you make in your life to achieve those financial goals.

One decision that is easy to make, is to admit to yourself that any effort to select the top stocks and industries to lead us out of this recession is a waste of your time and money. That doesn’t mean that you shouldn’t own any common stocks, because maybe you should.

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The first quarter of 2009 is almost over and unless we see a dramatic recovery in the stock market soon, it will go down as the worst quarter in the history of the stock market. This will almost certainly be reflected in those quarter-end statements you receive from your stockbroker or 401(k) provider.

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Ten years ago everyone was running after the next hot tip. The stock market was generating double digit yearly returns and the share prices of companies like Qualcomm and Intel seemed to be doubling overnight. Greed was running rampant in the psyche of investors, and no one wanted to miss out on the next hot stock.

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First it got entangled in the sub-prime mess by repackaging and selling mortgages without any transparency of the risk associated with these investments. Next, a slug of Ponzi schemes started to surface, topped by the infamous actions of Bernie Madoff.

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