Customer Reviews

All About Asset Allocation

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I was pretty impressed with this book. I give it an A+.

I have been a student of investing and financial planning since 1979. In 1978, when Venita VanCaspel's book The New Money Dynamics was published, the term "asset allocation" was not even listed in the index of financial terms. She doesn't really mention asset allocation between asset classes and any benefits of asset allocation.

Gary Brinson's 1986 famous study can be defined as the birth of asset allocation. He found that over 90% of a portfolio's return can be determined by the asset classes used, not what the individual investments were. Brinson's findings have been relatively slow to flow through the investment community and to individual investors. Dial the time clock ahead from 1986 to 2006, and one of Business Week's cover stories seeks to explain why the S&P 500's profits have increased dramatically over the last 5 years, yet the S&P 500 companies have had very little stock price appreciation. One explanation offered is that more and more investors practice asset allocation and choose other investments besides the S&P 500 for their portfolios. The increased demand for other asset classes like foreign stocks, commodities, and gold has subsequently less to a decrease in demand for large cap stocks in the S&P 500.

Ferri's book does an excellent job of explaining the concept of asset allocation and he uses real life portfolios to illustrate the advantages of asset allocation.

Ferri points out the ideal investments to add to one's portfolio would be negatively correlated to the investments in the existing portfolio. He also points out that the correlations between asset classes changes over time. If an investor keeps many different asset classes in his portfolio, the investor can take advantage of these changing correlations over time.

All-in-all, a great book for learning the concept of asset allocation. I would suggest companion books to supplement this book including The Richest Man in Babylon, Bogle on Mutual Funds, The Millionaire Next Door, The 4 Pillars of Investing, A Random Walk Down Wall Street, and the Coffeehouse Investor.

My fee-only financial planner recommended that I read this book in preparation for my annual review of investments. He offered to buy back the book if I was dissatisfied. I found the book valuable and therefore did not take him up on his offer.

I appreciated Ferri's clear explanation of the concepts of asset allocation accompanied by plenty of data tables and graphs. I also found his technique of limiting each chapter to three or four topics and stating them both and the beginning and end of the chapter very helpful in reviewing what I had learned.

Although the topic is complex, Ferri kept his text at the layperson level. It definitely gave me a better understanding of the Modern Portfolio theory principles my financial planner was following in determing my personal asset allocation.

Although I have the services of a planner, the book provides enough information for the do-it-yourself type to set up their own plan based on the principles of the book. A particularly nice touch is a list of funds that meet specific asset allocation goals at the end of each chapter explaining that asset class.

This latest book from Richard Ferri, CFA, has all the elements needed to help an investor develop and implement an asset allocation strategy. The book covers the nuts and bolts and provides lots of supporting graphics. In addition, the author provides recommended portfolios for those in various stages of the investment cycle, as well as for investors with varying degrees of risk tolerance (aggressive, moderate or conservative). This book has something for both novices and more sophisticated investors alike. It's a winner!

Author Ferri cuts through the fog of academic analysis and conventional wisdom and provides common sense advice that investors can use. Of particular value is his discussion of changing correlations among asset classes. If correlations were static, it would be child's play to build a portfolio that sat squarely on the efficient frontier and satisfied any individual's risk tolerance and return requirements. But as he illustrates, correlations between asset classes change over time, sometimes quickly and unpredictably. Since the shifts are unknowable in advance, it is impossible to stay consistently balanced on the knife edge of the efficient frontier. His advice- own a little of everything in some generally accepted proportions and don't sweat the details. That's great counsel, sure to serve most investors well and allow them to sleep at night and enjoy life, rather than worrying about the status of their asset class correlations. I have read Bernstein's "Intelligent Asset Allocator" and Swensen's "Unconventional Success" and this is by far the best of the three.

I'd gotten past the whole "How much should I save? Reduce your debt, pay yourself first" personal finance books and really wanted to understand asset allocation beyond 80% stocks and 20% bonds. I lucked out finding this book, it was exactly what I wanted and more. It's unfortunate asset allocation books get short shrift in bookstores and even in general searches on Amazon for "personal finance." It's such a critical component of long-term investing, and it's the piece that most personal finance and/or retirement books gloss over.

Asset allocation is not just about stocks and bonds, but it's about asset classes, styles, foreign vs U.S. -- and this book includes some incredibly revealing information about how adding certain "riskier" investments actually REDUCES portfolio risk and increases returns. I've read a couple of the books this author recommended after his, but this was the perfect one to start with. I can't recommend it highly enough.

If you are looking to get beyond perfomance chasing, and direction-less wandering, start here! The info and technical background are great. It has a great section decribing Modern Portfolio Theory.

One thing I have yet to get my mental arms around is (that is discussed in the book): considering that Small cap value funds, REITs, Foreign small funds and Intermediate bonds are shown to be top performers in achieving increased returns and reductions in volatility (standard deviation), why do the suggested portfolios look very similar to everyone elses?... Especially with such low %s in REITs?

This book has definitely whetted my appetite for more info on asset allocation and rebalancing. Get it if you want to mature as a mutual fund investor.

Just before reading Richard Ferri's "All About Asset Allocation" I had read William Bernstein's two books on the same topic, "The Intelligent Asset Allocator", and "The Four Pillars of Investing" (both really excellent). Compared to the broad reaching Bernstein books, which bring in a lot of examples from stock market history in explaining Asset Allocation, the Ferri book is a straight up text book, clear, spare but complete, and really well done. It really helped to hone my understanding of the topic. After reading it I also purchased his book on Index Funds.

I have read several books which, in whole or in part, deal with asset allocation. This book covers new ground for me and is, without question, the best treatment of the subject I have read. Since asset allocation is about the most important aspect if investing, I recommend it highly.

Discover how to make your portfolio hit the sweet spot. This book takes your investing to the next level --- the winning level.

I got a lot of valuable information from this book. For one thing, it deals with the allocation of the fixed income portion of the portfolio --- something no other book that I'm aware of has done. And this is important.

There's really nothing that this book doesn't cover when it comes to asset allocation. It certainly helped me to get my own portfolio back in shape.

It talks about your real tolerance for risk --- not those that you get from tests. It says that most of us have less tolerance than we admit. I think that's true. We talk like we can handle a lot of risk when in truth, we can't. This is good to know.

Asset allocation is a critical part of investing. It doesn't matter if you're a small investor or a big one. You need help with asset allocation. And you can't depend on the pros to give you any help.

If you invest at all, you should read this book and keep it handy. You'll need it to guide you from time to time when you reallocate --- as you should and as you need to.

The book talks mostly in terms of index funds. But it can be used for any sort of investing. It's especially helpful, however, for those who invest in index funds, mutual funds and etf accounts.

The one thing the book seemed to lack was an explanation as to how exactly diversification spreads or, one should say, lessens the risk and how each allocation does so.

Financial pundits frequently claim that asset allocation, not stock-picking, accounts for over 90% of investment results, but not everyone knows how many asset classes to have or how much money to allocate to each class. That's where Ferri's book comes in.

Ferri provides a thorough discussion of asset allocation, shows how it helps balance risk and return, and applies it specifically to a wide range of asset classes. I was particularly interested in the way Ferri subdivided the general asset classes into categories and styles, each of which has its own unique risk and return characteristics. Stocks were subdivided into the categories of foreign and domestic, large-cap and small-cap, and growth and value. Bonds were subdivided into the categories of foreign and domestic, long-, mid-, and short-term, government, mortgage, municipal, and corporate, investment-grade and junk. Real estate included owner-occupied residential, rental residential, and commercial. Ferri also discusses investments in cash, commodities, and collectibles, as well as a brief mention of exotica like hedge funds and private equity, both of which he views with suspicion.

Everything is presented in a no-nonsense manner, with lots of charts and graphs, and few if any amusing anecdotes to lighten the mood.

Ferri discusses the interaction of asset allocation and life-cycle investing and provides sample portfolios that might be appropriate for each of the four main stages of an investor's life. As an example of how detailed the analysis is, some of Ferri's model portfolios contain 12 mutual funds. That's a lot of funds! Ferri also provides basic portfolios, however, with just four or five funds. Most investors could probably get along fine with the basic portfolios, until they accumulate enough assets to make it worthwhile to take on the extra paperwork involved in handling 12 funds.

Along the way, Ferri discusses the impact of taxes, inflation, and investment costs. (More charts and graphs!) He's a big fan of low-cost mutual funds. No surprise that Vanguard funds predominate in his model portfolios.

This is an excellent book about a fascinating and important topic, but it is pretty detailed. Novices with smaller portfolios might want to start with Burton Malkiel's "Random Walk Guide To Investing" instead. It's much shorter and easier to read, but still covers enough of the basics to get you started.