Asset Allocation DeMystified
What Defines “Proper” Asset Allocation? 1
Why Asset Allocation Matters 4
How Much Does Asset Allocation Matter? 9
Why Investing Matters 9
What You’ll Learn from this Book 11
Quiz 13
CHAPTER 2 The Underpinnings of Asset Allocation 15
Predicting Asset Performance in the Short Run 18
Predicting Asset Performance in the Long Run 19
Different Asset Classes Take Turns Leading the Market 20
Diversification May Fail You 22
Under Most Circumstances, Diversification Works 23
The Markets Are Largely Efficient 24
Investors Care About Risk as Much as Return 25
Quiz 28
CHAPTER 3 The Building Blocks of Asset Allocation 31
Your Stocks 31
Your Bonds 49
Quiz 60
CHAPTER 4 Establishing a Strategic Plan 63
Your Age 63
Your Time Horizon 64
Your Risk Tolerance 67
Your Savings and Wealth 68
Start Simple: Age-Based Rules 70
Basic Allocation by Life Stage 73
Quiz 79
CHAPTER 5 Subasset Allocation 81
Your Stocks 81
Your Bonds 89
Your Strategic Plan 92
Quiz 96
CHAPTER 6 Making Tactical Adjustments and Tilts 99
How to Make Tactical Shifts 100
Common Tactical Moves 105
Quiz 120
CHAPTER 7 Alternative Approaches and Assets 123
Leverage and Life-Cycle Investing 124
Human Capital and Asset Allocation 127
A Rising Glide Path 131
A Flat 60/40 Approach 134
Alternative Assets 138
Quiz 150
CHAPTER 8 Establishing a Rebalancing Strategy 153
If You Don’t Rebalance, the Market WillRebalance for You 154
Understand the Math of Recovery 157
Appreciate the Odds of Losing 158
Beware of Being Whipsawed 160
The Purpose of Rebalancing 160
Rebalancing Methods 165
Quiz 175
CHAPTER 9 Automating Your Asset Allocation Strategy 177
Option 1: Old-Fashioned Balanced Funds 178
Option 2: Risk-Based Asset Allocation Funds 186
Option 3: Target Date Life-Cycle Funds 191
Quiz 200
Final Exam 203
Answers to Quizzes and Final Exam 219
Index 221
How you combine your different assets can be more important than the actual assets you invest in. This easy-to-understand guide shows you how to balance risk vs. reward using various mixes of stocks, bonds, real estate,foreign currency, derivatives, commodities, and alternativeinvestments.
Asset Allocation DeMYSTiFieD explores strategic and tactical asset allocation strategies, along with modernportfolio theory in which future risks and returns areweighed based on history.
Packed with practice exercises and chapter-ending quizzes that reinforce what you learn, this practical, hands-on guide provides all the knowledge and insight you need to build a solid portfolio, whether you're looking for short-term gains or long-term growth.
This fast and easy guide features:
- A detailed overview of the underlying principles of asset allocation
- Proven methods for increasing longterm returns while managing risk
- Tools and techniques for determining investment personality and goals
Simple enough for a novice but challenging enough for an experienced investor, Asset Allocation DeMYSTiFieD helps you make smart strategic decisionsto build a powerful portfolio.