The winner of then book Investing for Dummies is Morgan. Please contact me at livingalmost at gmail dot com. I will mail out the book asap! But onto a review of the book Killing Sacred Cows by Garrett Gunderson.  As usual, leave a comment for a chance to win!

This book tries to explain the “real” truth about financial myths and what is stopping them from being rich. I believe in many things explained in the book, but I have a few caveats.  But let’s look at the myths and chapters.

The first chapter discusses the idea of a “Finite Pie.”  The myth is that there is a limited amount of wealth and we all need to be working hard to get it.  The author suggests this is an untrue myth, and there is enough wealth to go around and we can all prosper together. He says it’s a scarcity mentality then traps us.  An example he gives is a friend at work gets a promotion, but you are jealous rather than happy.  Basically the point the author is making is that we have to be happy with what we have and not worry about keeping up with the Joneses.  That true happiness lies within.  I happen to agree, but the reality is sometimes the green eye monster of envy will rear it’s head and your only human.

The second chatper talks about the fallacy of a 401k.  The myth is put your retirement money in a 401k and forget about it. Gunderson says this is a bad idea because the money is stagnating and beyond your control.  His argument against 401k is that you are unable to tap the money until you retire, and you are unable to decide what to invest in.  Rather you should keep the money outside the 401k and invest it yourself.  You should spend the money now to make more money, making the money productive, for example real estate. He says that we’re forcing ourselves into a scarcity mindset by saving in a 401k because are not doing what we really want to do and investing in ourselves now.

I personally disagree with this idea for a lot of reasons.  One, how many people who save in a 401k will actually save the money outside of a 401k responsibly?  But if they did, and they chose their own investments, why would it do better than in a 401k?  Second, there is the tax break of the 401k. Not just the tax break now, but annually, you do not pay taxes on your dividends and capital gains.  Let’s say you invest in an S&P index fund inside your 401k and outside.  Every year you will lose a bit of the gains in the identical fund to short term capital gains and you started with say 15% less because of your tax bracket.  So I’m not entirely sure I buy his reasoning for not investing in the 401k.

I do agree that if you would rather invest the money in your own business or real estate because you believe in the business then it’s fine.  But I think for most people they are not entrepreneurs and will work a 9-5 job salaried job.  Whether they are happy is up to them. I am happy and I like my 401k and I have no desire to start my own business or invest in real estate.  So why should I not invest in a retirement account and shelter the money for the future?

The second argument about estate taxes is moot.  How many people die leaving over $1 million dollars instead of spending it on a nursing home, in home hospice, etc?  Reality is medical care at the end of your life is 99% of your medical expenses.  How much wealth is really going to be passed on when people are barely saving?

Third myth is wealth is your net worth.  The author argues, it’s not.  Wealth is doing what you love and focusing on our net worth stops us from really achieving. I agree with this.  The idea is do what you love, and the money will follow.  Mostly because if you are passionate about what you do, then you’ll work harder and be more successful than someone just doing it for a paycheck.

Fourth myth is financial security comes from a steady paycheck and balances.  The author argues the reality is the only financial security is in yourself.  I can honestly say that no one I know who works for a paycheck thinks there is financial security in working for a company.  We’ve all been laid off too many times to believe that.  The TRUTH is pretty much everyone under 40 knows there is no job security, there is no pension, and you have to be ready to get your job outsourced at any time.  I believe the mentality the author is talking about really is true of boomers, but Generation X?  No way.  Gunderson also says that investing in your own skills is the only job security or running your own business.

The fifth myth is you have to have money to make money.  He argues the reality is money is nothing more than the expression and byproduct of value created by people.  He says prosperity does not equal money and money does not equal happiness or power.  If we create our own prosperity we will be wealthy.  Truth is that money does buy power.  Rich people get to decide who gets hired and fired.  Which company (usually their wealthy friend’s company) will get the lucrative business contract.  But it doesn’t mean you can’t start with nothing and still be happy.  Or that you cannot get a loan to get started.  But money does = power in many cases.  Or else schools would not be named after benefactors.

Sixth myth is that high risk = high reward.  Gunderson says that investments that align with your “soul purpose” is the least risk.  True. Basically he’s saying if you start your own business it’s not risky because you are passionate and doing what you love.  Thus you have a high chance of success and it’s less risky than a 100% stock portfolio.  Do I agree?  Sure. You believe in what you do, are probably excelling and working harder than anyone else, so the risk is somewhat mitigated.  But not entirely. Why?  Because some businesses, like starting a web 2.0 business is inherently risky.

The seventh myth is self-insurance is best.  The author argues you should buy the best insurance you can afford.  He argues it decreases your risk and increases your productivity.  His argument is for life insurance.  People buy term life insurance because it’s cheap and affordable. He says it’s a great option for those who can’t afford more. But if you can, you should buy whole life because with term insurance you pay the premiums for 20 years and then never see a penny back!  Also it’s a great way to transfer wealth. I won’t disagree with his arguments against self insurance, but I believe it really is for a small percentage of people.  The people who will leave a substantial amount of wealth behind.  Why?  Because the difference between term and whole life insurance is substantial.  And one argument is, the difference between term and whole life insurance could be used to start the “business” Gunderson keeps preaching we should all start.

Myth eight is debt is scary, get rid of it.  Reality according to Gunderson is understand the difference between debt and liabilities.  Then leverage yourself appropriately to increase your prosperity.  I agree 100%.  There is a need for debt, like mortgages or business loans.  Without these types of loans no one would start a business or own a home.  So I can see that debt is necessary to prosper.

Myth nine price is what matters, don’t spend more than you need because a penny saved is a penny earned.  The author argues this is untrue.  That the price of things doesn’t matter, what does matter is value.  That focusing on value will save you money in the long run.  It’s the argument of cheap versus frugal.  That you should try to use your money wisely.

The book wraps up with a chapter on disputing myths.  Basically it tells you to find your soul purpose in life and continually work to educate and improve yourself and your skills.  It says that the most important thing is investing in yourself.  Prosperity and wealth comes from being happy with yourself.

And the last chapter is the 401k hoax.  The explanation about the 401k hoax can be read at Garrett Gunderson’s website.   Check it out and you can comment about what you think.

My take on the book? It’s a book about starting your own business. It’s mostly to give you confidence that starting your own business isn’t risky.  That you are “investing” in yourself.  That saving money for the future is a waste of time because it should be used now to invest in your business or yourself.  Valid points, but there will be a future when you cannot work. And most people will not have a business or real estate to generate passive income. So be wary of the sales techniques at the end of the book. It might end up costing you more to “buy” advice to get “confidence” to start your own business.

But leave a comment for a chance to win.