7 Must-Read Finance Books
It doesn’t matter whether you work with a fee-only financial planner, feel confident in DIYing your own money management, or are somewhere in between and just trying to figure it all out — these 7 books belong on your reading list.
When You’re Just Starting Out
Get a Good Grasp of the Fundamentals with Work Your Wealth: 9 Steps to Making Smarter Choices With Your Money
Okay, so maybe I’m a little biased on this title. But if you need some objective third-party opinions, check out that 4.8 out of 5-star rating and the customer reviews on my debut book.
Work Your Wealth covers 9 important foundational pieces of your financial life, and explains how to approach each to set yourself up for long-term success.
If you want to cut through the clutter, skip the fancy technical jargon, and just get to the point of what it takes to do the right things with your money, start here.
Dip Your Toes into the Investing Waters with The Random Walk Guide To Investing: Ten Rules for Financial Success
Burton Malkiel made the famous claim that a “blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.”
His point? There’s endless research that shows active investment management (like stock-picking) fails to outperform passive management (like investing your money into an index) over time. One of his best-known books, A Random Walk Down Wall Street, is a great read for when you want to build your own investment portfolio to build long-term wealth.
But it’s also extremely in-depth and adds more complication than you need when you’re in learning and information-gathering mode. So pick up The Random Walk Guide to Investing: Ten Rules for Financial Success instead for a simpler, condensed, and extremely readable book.
You’ll get the dos and don’ts of getting started with investments so you can take the first step with confidence.
When You Want to Make the Complex Simple
Focus on What’s Important to You and Just Get Started with The One Page Financial Plan: A Simple Way to Be Smart About Your Money
Most people feel completely overwhelmed at the thought of tackling financial planning. It’s hard enough to know what you’ll want in 5 years. How are you supposed to know what you’ll want in 30 years — much less how to actually get there?
Carl Richards believes most financial plans are way too complicated and cause people to overthink their money and goals to the point of analysis paralysis.
His book, The One Page Financial Plan, explains that instead of trying to create this complex plan that details what you’ll do from now until retirement, you should focus on understanding what’s important to you. From there, you can write down meaningful goals that are based on what you value — not on how much money you think you should have in the bank by age 65.
And then, says Richards, you make your best guess about how to get there. Because no one knows what will happen tomorrow, the best any of us can do is align our money with our values and make the best decision we can right now, with what we know and understand today.
Reconnect with Timeless Wisdom with The Richest Man in Babylon
Originally published in the 1920s, George Samuel Clason’s The Richest Man in Babylon dispenses simple — yet powerful — pieces of financial wisdom in parable format.
He tells stories of characters who face challenges and choices to make in both business and personal finances, and those tales remain as relevant today as they were a hundred years ago (or even in ancient Babylon).
Take this snippet from one of the stories:
Thou do not all earn the same, [yet each man claims to have a lean purse or no money]. Some earn much more than others. Some have much larger families to support. Yet, all purses are equally lean. Now I will tell them an unusual truth about men and the sons of men. It is this: That what each of us calls our necessary expenses’ will always grow to equal our incomes unless we protest to the contrary.
Sound familiar? It should: today, we’d call this lifestyle inflation or lifestyle creep and we’d talk about the importance of keeping our expenses in check (even when we start earning more).
It’s a good reminder that personal finance is simple and straightforward. That doesn’t mean reaching financial success is easy. But we don’t have to make it harder on ourselves by adding in complication, either.
When You Are (or Want to Be) a Business Owner
Keep Your Business Finances Efficient with Profit First: A Simple System to Transform Any Business from a Cash-Eating Monster to a Money-Making Machine
Entrepreneurship adds a layer of complexity to any financial situation. Unfortunately, being good at “business” doesn’t automatically make you good at money management — for yourself or for the company you run.
Don’t try to fly by the seat of your pants, or wing it with informal, messy bookkeeping and sloppy money moves. Get Mike Michalowicz’s Profit First so you can learn a system for accounting that explains what to do with the earnings that your business generates.
The important thing to note here is to be sure to consult with your CPA on the tax percentages you’re setting aside. Michalowicz’s gives a great framework, but percentages (especially taxes) should be tailored to your specific situation.
Create a System for Saving with I WIll Teach You to Be Rich
Ramit Sethi’s style can be polarizing. But there’s no denying he’s a successful businessperson — in large part because he focused on nailing the personal finance side of his life from the get-go.
I Will Teach You to Be Rich explains how anyone can set up systems and processes to increase savings and consistently grow wealth.
This is a critical read for entrepreneurs because it’s so easy to justify spending more when you have a business. You can easily burn through far too much of your earnings in an attempt to “invest” in your business.
Yes, growing and scaling up may require some capital. But making sure you have a system for personal financial success in place first will help you better manage and allocate the money coming in through your business.
Learn to Work Your Wealth — as an Entrepreneur
Wishing you had the same kind of fundamental guide for finances as I wrote with Work Your Wealth, but specifically written for entrepreneurs?
If you’ve ever wondered about things like:
- the logistics of creating a startup and operating budget
- how much to pay yourself as an entrepreneur
- what your pricing should be
- how you should handle your own retirement planning as a business owner
..then you’ll want to stay tuned.
Global Equity Investors Should Be Prepared for a Market Pullback
Written by: Paul Quinsee, Global Head of Equities, J.P. Morgan Asset Management
Themes and implications from the Global Equities Investors Quarterly
- We expect the trend of increasing global corporate profits that began in mid-2016 to persist throughout 2018, with economic growth stronger, interest rates still low and capital discipline evident in most industries. Our analysts’ forecasts of double-digit earnings for 2017 and 2018 look to be on course.
- Fundamentally, this remains a good environment for equity investing, but our optimism is tempered. Higher equity valuations—and the absence of a significant market correction for quite some time—make us more cautious now.
- We still see more upside in emerging markets, Europe and Japan than in the U.S. After strong gains from growth stocks, we identify incremental opportunity in value stocks again. Across global markets, many financials still look promising, and the surprising extent of capacity reductions in many basic industrial businesses is intriguing to our investors.
- Among the potential risks we are monitoring: the unwinding of quantitative easing (QE) and its impact on capital markets; the traps of investor complacency and excessive risk-taking.
For more than a year now, a stronger, broader global growth environment has driven an acceleration in corporate profits around the world. As we approach the end of 2017, our estimates for a continued synchronized earnings recovery sustain what we would describe as our tempered optimism. We think this recovery will continue for a good while yet and are not expecting a recession (even for the now late-cycle U.S. economy) over the next couple of years. Our analysts’ forecasts of double-digit earnings for 2017 and 2018 look to be very much on course, having been supported by a wide range of positive second-quarter corporate results. As bottom-up stock pickers, we are finding ample opportunities, especially in Europe, Japan and emerging markets.
But our optimism is restrained. Higher equity valuations—and the absence of a significant market correction for quite some time—make us more cautious now. Our investors now expect average, not outsize, gains over the next 18 to 24 months. The eventual unwinding of global central bank balance sheet expansion, slated to begin with the Federal Reserve (Fed) in October, will surely present challenges. And after a strong run for global equity markets, we must guard against the trap of investor complacency and excessive risk taking.
In the following pages of our quarterly Global Equity Views, we present our investment outlook, discuss market trends and spotlight opportunities and potential risks.
Economic growth and corporate earnings
The breadth of global growth has encouraged once-skeptical investors who worried that the growth was too U.S.-centric. We now see synchronized growth and rising growth expectations across both developed and emerging markets. Purchasing Managers’ Index (PMI) readings show continued healthy levels, and in emerging markets the pace of GDP growth and the breadth of industrial production growth are increasing. Some have taken to comparing this to the old cliché of a “Goldilocks” environment. It can’t last forever, of course, but we think the not too hot, not too cold environment should prevail through 2018.
Earnings are driving markets higher (EXHIBIT 1), and we are forecasting double-digit EPS growth globally in 2017 and 2018. In the U.S., a combination of steady revenue growth, improved margins and heavy share buybacks has boosted earnings growth for several years, and we expect this to continue. However, higher debt levels will eventually constrain buybacks. In Europe, corporate profits are growing for the first time in six years, although we do acknowledge further euro strength as a potential headwind. Strong operating leverage for Japanese corporations should help propel earnings gains this year and next. In emerging markets, we project high double-digit profit growth in 2017.
So far this year, equity markets have been led by growth stocks, especially a small group of Internet companies with the market monikers BAT (Baidu, Alibaba and Tencent) and FANG (Facebook, Amazon, Netflix and Google). Some investors see a bubble forming here, drawing parallels with the extreme prices of many technology stocks in 1999. But on balance we are less concerned, given that these companies boast massive user bases, impressive growth rates and in many cases strong profitability as well. The recent rally has made them less attractive, but their valuations do not seem unreasonably high just yet. Potential regulation is the biggest risk.
Earnings growth has driven this year’s rally
EXHIBIT 1: COMPOSITION OF TOTAL RETURNS THROUGH SEPTEMBER 30, 2017
Source: FactSet, MSCI, J.P. Morgan Asset Management. Returns shown are for MSCI gross return indices except for U.S., which represents the S&P 500 index return. Past performance is not necessarily a reliable indicator for current and future performance. Data as of September 30, 2017.
From a regional perspective, we still see more upside potential in emerging markets and developed markets ex-U.S. In emerging markets, earnings are growing and valuations are still reasonable—we have only seen half the multiple expansion that we see in a typical emerging market up cycle. In international markets, our investors continue to acknowledge new themes; for example, activism in Europe is a new reality, and the number of European companies subject to activist campaigns has tripled over the past five years (while the number of U.S.-targeted companies has dropped). It is evident that there is plenty of opportunity for European companies to improve profitability and allocate capital in more shareholder-friendly ways. Greater capital discipline is also evident in Japan, where stocks look more reasonably priced than we have seen for many years.
From a style perspective, growth has outperformed value this year. Our investors see more opportunity in value stocks, but a major style rotation from growth to value seems unlikely in the near term. Within value and across global markets, many financials still look promising. Not only do they stand to benefit from higher interest rates, but their valuations are still relatively attractive, and many management teams are beginning to return more capital to shareholders. Some of our value investors are also finding opportunities in deeply out-of-favor retailers, believing that the fear of Amazon is perhaps overdone in some cases. And across investment styles, we are finding opportunities in relatively wide spreads between sectors (for example, “bond proxies” vs. cyclicals) vs. relatively narrow spreads within sectors.
Surprises are always interesting, and the surprising extent of capacity reductions in many basic industrial businesses is intriguing to our investors. A large number of the capacity cuts have occurred in China, where the government has incentivized politicians to close down capacity in their region (often for environmental reasons), a trend that began with coal and continued with steel and aluminum. Capital deployment trends are also positive for many industrial companies, although the U.S. energy sector remains an exception.
Reduced monetary stimulus
The slowdown in the expansion of central bank balance sheets—which ballooned from $4 trillion pre-financial crisis to $17 trillion today—presents a clear challenge to investors. The slowdown, already underway, is set to enter a new phase with the Fed’s first post-QE reduction in its balance sheet.
How might the unwinding of quantitative easing impact capital markets? It is the subject of intense debate. Some forecasters expect a very gradual rise in interest rates, while others fear a more abrupt dislocation as the tide of liquidity begins to retreat. We take some comfort from the still relatively attractive valuations of stocks vs. bonds.
Over the near term, our investors worry about complacency, especially after such a strong run in equity markets. In this context, some point to the CBOE Volatility Index (VIX) nearing 30-year lows. However, we note that many of the usual warning signs of a looming market downturn are not yet visible. Retail investors still seem cautious, and IPO activity continues to be moderate. Most important, valuations
It’s been a great year for equity markets around the world. We see enough opportunity to keep investors engaged, but our optimism is tempered by higher valuations and the potential for increased risk appetite to eventually lead to excessive risk-taking. We advise investors to stay diversified and look for opportunities in value stocks and international markets. However, some higher equity valuations, especially in the U.S. and in some bond equivalent sectors, do warrant close attention, with an eye toward the possibility of a short-term correction. Equity investors should be prepared for a market pullback but not yet positioned for the more substantial downside that usually comes with recessions.
Source: J.P. Morgan Asset Management. Views are as of September 30, 2017.
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Opinions, estimates, forecasts, projections and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. There can be no guarantee they will be met
Important information: The views contained herein are not to be taken as an advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield may not be a reliable guide to future performance.
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