Resources

To be a successful Couch Potato, it’s important to understanding the subtleties of index investing. Here are some recommended books that will help.

The basics

The Elements of Investing, by Burton Malkiel and Charles Ellis (Wiley, 2010). Two of the greatest champions of indexing explain the basics in plain English. This is an excellent choice for the novice investor who wants an introduction to the strategy. See my review for details.

The Little Book of Common Sense Investing, by John C. Bogle (Wiley, 2007). John Bogle was the founder of The Vanguard Group, and he revolutionized the financial industry when he created the first index fund for retail investors in 1975. He remains one of indexing’s most tireless champions and this brief, readable book is the ideal introduction to the subject.

Millionaire Teacher, by Andrew Hallam (Wiley, 2011). Hallam was a highly successful stock picker, but that wasn’t the main reason he was able to amass a million-dollar portfolio. The blogger and schoolteacher explains why frugal living, diligent saving, and a diversified portfolio of index funds are the real keys to building wealth. See my review for more.

The Smartest Investment Book You’ll Ever Read, by Daniel Solin (Viking Canada, 2006). Short, easy-to-read chapters compellingly lay out the case for indexing. The author is American, but the book is available in a Canadian edition with some useful changes.

The more advanced theory

The Power of Passive Investing, by Richard A. Ferri (Wiley, 2010). Ferri takes a comprehensive look at the active-versus-passive debate and makes a compelling case that indexing is most likely to lead to investor success. See my review for more.

The Quest for Alpha, by Larry Swedroe (Bloomberg Press, 2010). One of the most ardent advocates of passive investing makes his own case, citing decades of academic research that show why outperforming the market is so difficult.

A Random Walk Down Wall Street, by Burton Malkiel (Norton, 2007, ninth edition). First published in 1973, this classic by one of the earliest proponents of the indexing strategy was among the first to expose the folly of technical analysis (charting), stock picking and market timing: “It is clear that if there are exceptional financial managers, they are very rare, and there is no way of telling in advance who they will be.”

For the practical Couch Potato

All About Asset Allocation, by Richard A. Ferri (McGraw Hill, 2010, second edition). Choosing the right asset allocation is probably the most important investment decision you’ll make. Ferri explains correlation, diversification, risk premiums and the efficient frontier—all concepts that are at the heart of the indexing strategy.

The Smartest Portfolio You’ll Ever Own, by Dan Solin (Perigee/Penguin, 2011). Solin describes how small-cap and value stocks have delivered higher returns over the decades, and he provides a model portfolio for (American) investors who want to employ the strategy with ETFs. See my review for more.

The Fundamental Index: A Better Way to Invest, by Robert Arnott, Jason Hsu and John West (Wiley, 2007). A complete explanation of the fundamental indexing technique used by Claymore, PowerShares and other fund providers. It’s a persuasive argument, backed up by lots of data.

The ETF Book, by Richard A. Ferri (Wiley, 2009, second edition). A book for the advanced Couch Potato who really wants to understand how exchange-traded funds work. It thoroughly describes the many ways that securities in an index are selected and weighted, which is one of the most important considerations when comparing ETFs.