"Timely and practical. This book brings the leading edge of investment information to the prudent investor in an understandable way."--Charles Schwab, Chairman, Charles Schwab Corporation.

If we could show you how you could make smart investment decisions without having to spend all day following the stock market, would you be willing to spend a few hours learning how?

America is a country formed out of a revolution of new ideas; we have always welcomed change. Right now an important revolution is taking place on Wall Street. It is affecting the way billions of dollars are invested around the world.

After reading this book you will be able to take advantage of these new ideas and invest more confidently. You will no longer feel the need to search every financial publication for the latest investment insights. You will know that the basis of your investment strategy has been prudently researched by some of the finest financial minds in the country. We believe you will find the investment concepts in this book refreshing and rewarding. If you really take the time to learn these concepts, they will change the way you think about investing and the markets, forever.

At first glance this book may look like every other book on investing. You may even have heard these same promises before. That's okay. We invite you to be skeptical; that's a good attitude to have as an investor. Nevertheless, we think investing can be easy and understandable -- that's why we have written this book.

In the 1980s, dramatic changes took place in the investment community. The number of investment products available to the public increased exponentially, while the quality diminished significantly. Those were very frustrating times for us.

As strategic partners in a successful financial planning firm, we work with thousands of individual investors. Our main goal has always been to help our clients reach their financial goals. As part of this process, we prepared elaborate financial plans for our clients that clearly mapped out the path to successful attainment of their financial goals, and implemented the plans with investments from outside providers. If the outside investments performed to their stated expectations, our clients would achieve their goals. However, in many cases the actual results were disappointing. We asked ourselves, "What good are our carefully prepared financial plans if the implementation vehicles do not perform as expected?"

This frustration caused us to search for a better solution. We knew there must be a better way to invest our clients' money than to use the strategies that Wall Street was touting. We spent five years looking for solutions.

During that time, we discovered a remarkable fact: The fastest-growing investment strategy among institutional investors was almost completely unavailable and unknown to individual investors. At the time, most of the advice being given to individuals had little to do with the principles of investment theory, and much of it did not make good economic sense. It was more marketing hype than prudent investment advice. Unfortunately, this is still often true today.

Our quest led us to some of the top academics in the field of financial economics. Their ideas and investment theories were backed up by mountains of research and proof, but only the very largest institutions were taking advantage of this knowledge. The concepts developed by three men in particular were so influential to the field of finance that the trio won the Nobel Prize in Economics in 1990. Their ideas are collectively known as Modern Portfolio Theory.

We realized that our clients would gain tremendous benefit if we could give them the same Nobel Prize-winning investment strategies that were currently being used by major institutions. Our clients would truly be on the right road to fulfilling their financial goals.

At first we weren't sure that individual investors would understand these concepts. Many in the academic community discouraged us from trying to communicate the ideas. They were used to working with other academics or with sophisticated investment committees of large pension plans. They felt the strategies involved would be too complicated for private investors, and would confuse them into inaction.

Nevertheless, we moved forward, communicating these profound investment ideas to our clients. We happily discovered that the logic of the ideas is so compelling, new, and refreshing that our clients were quick to grasp it. After all, in many cases they were investing their life savings with us, so they were very willing to spend time learning to understand the concepts and how markets really work. Amazingly, these strategies actually simplified the investment decision-making process and allowed our clients the freedom to focus on other parts of their lives. We found that once investors truly understood how markets work, they were more comfortable with their investments.

Today, we find that many investors are skeptical of the investment community in general. Some have been disappointed by a stockbroker or investment manager who had a convincing story about how an approach was going to "beat the market," but whose strategies ultimately were not successful. Other disappointed investors purchased "hot" mutual funds with great track records, only to watch them turn cold and deliver returns far short of expectations and market benchmarks.

Those results are not surprising to us. In fact, we wonder why there aren't more unhappy investors. Believe it or not, the vast majority of investment managers and mutual funds don't beat the simple buy-and-hold approach, and those that do are part of a randomly changing group that is only marginally successful. In short, most investment managers and mutual funds do not follow through on their promises: They do not beat the market.

This may sound hard to believe, but it is totally consistent with the ideas of modern finance. An efficiently functioning capital market immediately incorporates all information into securities prices. The market price of any publicly traded asset reflects the collective estimate of its value of all market participants. An investment manager can only beat the market if he or she can consistently identify mispriced securities and take advantage of the mispricing after the costs of trading. Given the speed and size of information flow today, this seems unlikely. Historical evidence confirms how difficult it is, for professionals and amateurs alike, to beat the market.

Fortunately, there is an alternative. We call it asset class investing. The beauty of this strategy is that it works in harmony with market efficiency, rather than against it. Asset class investing as a strategy is consistent with the ideas of modern finance and is supported by decades of empirical evidence. After you read this book, you will fully understand the overwhelming logic and power of this approach.

We believe that asset class investing and other passive strategies will dramatically alter the way individuals invest their money in the future. We hope that this book will help these ideas become more popular with individual investors. We owe the financial security of our families to these concepts. We hope you will take advantage of them too.