Time to Make Cents

It’s important that one never stops learning, as personal finance and the world of investing are always changing and you need to keep abreast on current developments. With the growing interest in personal finance there is more information than ever before at your fingertips. Of course, not all of this information is worthwhile. From time to time I will be looking at some literature that is out on the market pertaining to personal finance. I hope to be able to help you find the worthwhile books while skipping the trash.

“How Wall Street Works” is written by David L. Scott, an Accounting Professor at Valdosta State University. The book totes itself as being “the beginning investor’s bible”. This is a pretty accurate description!

The book assumes the reader has no understanding of financial markets or instruments whatsoever (the first chapter discusses “What is Wall Street?”) and as a result uses simple, easy to understand language. It dispels information in a question and answer format (for example “what is a mutual fund”…). This style is effective in that it allows for easy navigation throughout the book. A reader can skip areas that they understand and revisit questions they need a refresher in. This is the type of book that a novice investor would likely hold on to and revisit until they got a firm handle on the basics

Unfortunately what makes this book so great is also it’s downfall. As a result of servicing novice investors, anyone who has a basic understanding of financial markets would likely find the book unnecessary and redundant. There is no talk about investment strategy or theory. Anyone who understands how interest rates affect bonds or why an index fund is more affordable than a mutual fund (which you could have learned by reading this blog!) would likely have no use for this book. Another issue that I found in some chapters was that the information was sometimes slightly misleading. This is likely a result of trying to simplify things to levels that anyone could understand. An example of this was a section in regards to mutual funds. The book stated that a mutual fund’s name would indicate the type of investments a mutual fund utilized in it’s portfolio. While this is generally correct, many mutual funds have come under fire for misleading investors (based on their names) in what they invest in. While I understand that in the essence of simplicity it is easier to tell investors to just look at a fund’s name, I worry that an unenlightened investor might purchase units of something that does not meet their personal finance goals.

Of course, it is unfair to put a book down for what it is not, instead of celebrating what it is. “How Wall Street Works” is a great first step into the world of investing. For those who have no idea what investment vehicles are or how they are purchased, this is the book for you. I would suggest it as a gift to a child or a young adult who has expressed interest in investing but has no knowledge about what it is all about. This book will provide a solid foundation for readers on which they can build a strong investing intelligence on.