March 27 (Bloomberg) -- Most investors fail to follow the basics, which is why many sell investments low and buy high, says Ric Edelman, a financial adviser and author, in his latest book “Rescue Your Money.”

The book, meant to be read in a single sitting (or one 30- minute New York City subway ride), cites the need for a diversified mix of stocks (using Exchange Traded Funds), bonds and real estate. It warns that cash invested in savings products such as certificates of deposit erodes over time because of taxes and inflation.

Edelman, author of six previous books and host of an ABC radio network program, is chairman and chief executive officer of Washington-based Edelman Financial Services LLC, which oversees about $3 billion for more than 10,000 clients in the U.S. It is a unit of Houston-based asset management firm Sanders Morris Harris Group Inc. Excerpts from the interview:

Levinson: This book didn’t take very long to go through. Was this intentional?

Edelman: “The book was intended to be a very quick read. People need to know what to do. They need to know what to do in a hurry. They don’t need to be wafting through a huge tome.”

Levinson: A lot of the advice in the book seems to be of the common-sense variety?

Edelman: “You could argue that the book is stating the obvious. Keep in mind that I host a nationally syndicated radio show and speak to ordinary consumers all the time. I don’t talk shop with ‘the brethren’ so to speak. Instead, I’m talking to consumers who really don’t understand how money works, they have no education about personal finance, they don’t understand Wall Street or investments. And they are thoroughly confused by what’s going on, what it means for them, what they ought to be doing. Their confusion has led, in this environment, to fear and anger. This book is written for them.”

Levinson: You make the point in your book that most annual gains in the Standard & Poor’s 500 Index come in short bursts. (The S&P rallied 22 percent from March 9 to March 23.) Are we seeing that now?

Edelman: “The problem with trying to predict the bottom of the bear is you don’t know until you’re past it. It’s only with the benefit of hindsight we can say, ‘Oh gee, that was the low.’ For example, until this recent market rally, we had started to look at Nov. 20; that was the actual market low for most of the indexes, but nobody knew it, until you turn around two months later to notice. Is this in fact the beginning of the market recovery long term? I’ll let you know in a few months.”

Levinson: Many people are dissatisfied by the performance of their money managers these days. Are they better off just saving the fees and investing themselves?

Edelman: “Consumers are discovering that the selection of their financial adviser is now the dominant question. It used to be the selection of the investments. Consumers have now realized that it’s too complex, too time consuming and they have delegated the task to advisers instead and they’re now discovering that the selection of the adviser matters more than they thought. In some cases consumers are finding that advisers they’ve hired aren’t as good as they thought.”

Levinson: You state in the book that holding cash is a bad idea, given the effects of taxes and inflation. Does this apply to people well into retirement?

Edelman: “If you are well into retirement, should you maintain your exposure to the volatility of the financial markets? On the assumption that you were doing it right in the first place, you probably didn’t have that exposure to begin with. I have not come across many 70- or 80-year-olds who had substantial losses in the past year and a half because they had their money carefully invested, conservatively invested and therefore the portion of their portfolios that have a lost a lot has been a small portion. I haven’t seen too many 75-year-olds getting wiped out. I’ve seen that happen to a lot of 30- and 40- and 50-year-olds.”

(The average 401(k) balance fell to $50,200 in 2008 from $69,200 the previous year, according to a January study by Fidelity Investments.)

Levinson: In the post-Madoff era, more people are asking questions about their money managers. Have you ever been sued by a client? Any regulatory sanctions?

Edelman: “No (on lawsuits). Finra? No. SEC? No. Twenty-two years, a clean record. We have one incident on our record, a client of the firm where there was a ‘personality’ clash. We were finding it increasingly difficult to satisfy his demands so we requested that he leave. His response was that if he left, he was going to liquidate his investments and he would incur losses and expenses in the course of doing so, and I agreed to write him a check to cover those losses.”

Levinson: Who are your custodians?

Edelman: “Predominantly TD Ameritrade, also Pershing LLC, Fidelity and Schwab.”

Levinson: According to the book, you’re not a fan of individual stocks. Why?

Edelman: “My attitude is in order to be a do-it-yourself investor, it requires three attributes: first, you have to have the knowledge to know what you’re doing; second, you need the time to devote to the topic; third, you need the desire to want to. My book is written for people who lack one of those three and in most cases all three. Most consumers simply don’t have that interest.”

Levinson: Are people prepared financially for retirement?

Edelman: “There are millions of Americans who have no idea that they need to be saving for retirement and they don’t know how to do it. How do you get them to pay attention? This book is an effort to say, ‘You know what, it’s accessible, it’s readable and you can implement it,’ which is the best part.”

“Rescue Your Money, Your Personal Investment Recovery Plan” by Ric Edelman is published by Free Press, a division of Simon & Schuster (167 pages, $9.99).

(Levinson writes for Bloomberg News. This interview was adapted from a fuller conversation.)

To contact the reporter on this story: Rick Levinson at rlevinson2@bloomberg.net.

Last Updated: March 27, 2009 00:01 EDT