How does a second-grader beat Wall Street? |

How does a second-grader beat Wall Street?

Bill Reed
Colorado Springs Gazette

COLORADO SPRINGS, Colorado “-A Chinese proverb says “One generation plants the trees; another gets the shade.” It’s a different kind of green, but that concept also applies to money management and investing, as parents plant the seeds of their children’s success.

Few parents take the responsibility as seriously as Allan Roth, a Colorado Springs financial adviser who just published “How a Second Grader Beats Wall Street.” The advice within is especially germane in today’s brutal market.

His book is not about a brilliant second grader; rather, it is about the simple lessons Roth learned from his son, Kevin, and how those lessons led to a portfolio that beat the complicated advice of Wall Street experts.

“What I learned is that everything we need to know about investing, we’ve learned by second grade,” Roth said. “It’s what we learn after second grade that turns out to be so destructive.”

That’s quite an admission from a certified financial planner and certified public accountant with an MBA who founded the local investing firm Wealth Logic. But he says it’s a handy piece of information to know when investors are battling what he sees as a three-headed enemy: Wall Street with its needless complication, the media’s constant trumpeting of the next hot thing, and our tendency to outsmart ourselves by thinking we’re a step ahead of Mr. Market – enemies that a schoolkid doesn’t acknowledge.

The project started as a dare to himself, as Roth vowed to teach his son enough about investing that he could beat the average expert by the time he was a second grader. Roth saw this as a fairly low standard, since most mutual funds lose to the S 500.

But there was a surprise in store. As he taught Kevin, Roth discovered that he was learning as much from his son as he was teaching, and his son’s questions exposed errors in Roth’s habits.

“If you look at the market all the time, like my dad, you’ll get stressed out over nothing,” Kevin writes in the book’s postscript. “It’s funny that Dad looks at the market a lot, because he tells people not to look at it.”

Roth marveled at the “clarity and crispness of the second-grade mind,” and has gathered some of Kevin’s wisdom into 13 golden rules of investing, such as: Keep it simple. Don’t gamble with your lunch money. Don’t put all your eggs in one basket. Spend your time watching “SpongeBob” instead of the breathless tips on Jim Cramer’s “Mad Money.”

And rather than thinking you’re a genius, realize how much you don’t know.

The result was an incredibly simple portfolio: 60 percent in the Vanguard Total Stock Market Index Fund (VTSMX), 30 percent in the Vanguard Total International Stock Index Fund (VGTSX), and 10 percent in the Vanguard Total Bond Market Index Fund (VBMFX). (Older investors, Roth said, should opt for a more conservative mix than Kevin, who is now 11. Some suggestions are in the book.)

That’s it. Simple. And so far in this bear market, Kevin’s judgment is beating the old man’s, as well as the S 500 benchmark.

Roth – who pens articles for Money magazine and The Colorado Springs Business Journal – wrote about the portfolio, and it caught the attention of Paul Farrell, the senior investment columnist for MarketWatch. Farrell put it in his list of eight great “lazy portfolios,” with Kevin’s picks next to those from guys like the manager of Yale University’s endowment. Then, publisher John Wiley Sons called to offer Roth a book deal.

The book came out in early March, and Roth has a series of speaking engagements to promote it. Meanwhile, he watches his clients make the mistakes that adults typically do, pouring money into stocks a few years ago as they peaked, and pulling it out now as they tank.

And that’s why Kevin beats their socks off.

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