By Larry Putnam, Contributing Writer

On a recent rainy day perfect for book browsing, I found myself cruising the investing and personal finance section of my favorite super-sized 50,000-title Barnes and Noble. Years ago, I developed a rule to help my search for good investment books: ignore anything with the phrases "How To…" or "Million Dollars" in the title. From painful experience, I learned that book titles like How To Make $1,000,000 Day Trading or Building A Million Dollar Stock Portfolio In 3 Months lack common sense and are hazardous to your wealth.

However, on my recent bookstore stroll, I spotted a paperback book (not as expensive as the hardbacks) with the title How To Retire Early & Live Well With Less Than A Million Dollars. I bought the book and read it because the title contained the phrase "Less Than A Million Dollars". The title seemed more humble, more realistic, less full of exaggeration than the nearby hardback titles blaring "Make A Million Dollars…" and "How to Get Rich…."

I discovered the book wasn't written specifically for index fund investors, but it contained solid arguments supporting index-investing strategies.

Gillette Edmunds, the author, retired at an early age in 1981 with $500,000. He decided to invest this nest egg and support his family with the profits and earnings from his investments. The book is a practical instruction manual on how to retire early with a small nest egg.

Although he doesn't stress indexing in the book, Edmunds favors many strategies used by index fund investors to grow portfolios.

For example, Edmunds emphasizes finding "dirt cheap methods" of implementing investment strategies. Throughout the book, he worries about high commissions and fees while buying or selling many different types of investments. This fretting over commissions (over time, they take a big chunk out of investment profits) leads him to favor index funds when buying or selling stocks. He writes, "Most investment geniuses become average investors over twenty to fifty year periods," - a powerful argument in favor of index fund investing.

Another bit of Edmunds wisdom: "You do not need to outperform any market to live off your assets. With the proper asset allocation, all you need is to stay even with the markets." Edmunds makes a strong case that it is very difficult to beat any market. So if you can't beat 'em - join 'em. Don't worry about guessing which individual heavy-commission investment is going to outperform the market next year. Buy the market; buy the index that consistently tracks the performance of the market year after year after year with very low commissions and fees. Over the long haul, the index fund investor will come out ahead when compared to the investor trying to pick individual investments that will beat the market.

To implement this strategy, Edmunds suggests an unusual asset allocation. He reports in 1996 the typical U.S. investor split his investments 40% U.S. stocks, 30% U.S. bonds and 30% cash. He feels the 40/30/30 allocation is a prescription for disaster. When U.S. stocks do poorly, U.S. bonds likewise lose value, and cash investments don't generate enough return to keep up with inflation. Edmunds recommends allocating investments between 3 to 5 non-correlated asset classes (he says holding less than three asset classes is hazardous). He argues that U.S. stocks are overvalued and suggests U.S. stocks and bonds should make up one-third or less of any investment portfolio. He suggests an investor hold two-thirds or more of an investment portfolio in 2 or 3 of the asset classes listed below (in addition to the one-third or less of the portfolio in U.S. stocks and bonds):

• Foreign stocks
• Emerging market stocks
• Foreign bonds
• U.S. real estate
• U. S. oil and gas

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