Customer Reviews

All About Asset Allocation, Second Edition

5 star:		(4)
4 star:		(2)
3 star:		(2)
2 star:		(0)
1 star:		(0)

 

 

I just finished the outstanding book, All About Asset Allocation, by Richard Ferri. While I am well versed on the topic, I still learned quite a bit as Ferri goes went into detail on every facet of the practice. The only negative was that there seemed to be a lot of repetition, but given how important this topic is, a little repetition is a good thing. Ferri excelled in providing plenty of low-cost providers of index funds to be used in your asset allocation plan, but fell short of suggesting many ETFs as the selection at the time of publication was not as extensive as it is now, 2006 (first edition).

If you want a step-by-step manual on proper asset allocation, this is your guide. Each chapter guides you along as you build fund by fund until you have a portfolio of up to 12 different asset classes by the end of the book. There are plenty of examples on where the research originated from (Fama and French, Markowitz, and more) and makes for an enjoyable and quick read. His other books are just as helpful.

The book covers basic asset allocation information which may be useful to novice investors. Similar information is available in single chapters of more general investment books. For experienced investors, the book contains nothing new.

This is a great book for someone looking to assemble their portfolio and not only successfully diversify it, but understand WHY diversification among asset classes works to reduce risk and increase returns.

My only real complaint is that it's sloppy - thus the three stars. I almost had to put the book down because I found so many spelling and grammatical errors in the first chapter. It was very distracting to me.

One has to wonder if this book was even proofread. (I think one or two errors in an entire volume is somewhat acceptable, but not the level of errors seen here.) I asked myself "Can I take the advice of such a careless author?" But in the end I think the concepts are mostly sound and it's a helpful intro.

But please, do a revision and fix all the errors!

If you think you understand asset allocation, please read this book. I knew I wasn't an expert, but I thought I knew more than I really did.

Ferri does a few things in this book:

1. Convinces you that this is perhaps the most important aspect of investing. [I might add that even if you are a great stock picker or market caller you need to understand asset allocation and use it as a basis for any more tactical investment strategies.]

2. Teaches you just what asset allocation really is, including warning you of some false ideas you could be harboring. Personally, I re-thought my asset classification system after reading this book.

3. Gives you concrete guidance on how to actually go about doing it for yourself, including specific suggestions/examples of ETFs (and other funds) you can use.

The concepts discussed in this book require the reader to pay attention, but there is little that Joe or Jane Sixpack could not follow.

I recommend as a companion to this another Ferri book: The Power of Passive Investing: More Wealth with Less Work. I read it first and it is what prompted me to read this asset allocation book. I think reading both of these will have a "multiplier effect" -- the combination is more than the sum of the parts.

I have not read Ferri's The ETF Book: All You Need to Know About Exchange-Traded Funds but suspect it may also be a good asset to allocate to your investment library.

I havent read any of Richard Ferri's earlier books, but I found this to be an excellent overview of strategic asset allocation. Gave me quite a bit of good information all in one place.

Having been investing for 30+ years, I always thought that what I was doing was asset allocation. What I was actually doing was asset diversification which is something else entirely.

I was also guilty of not having a solid investment plan to stick to and was often trading with my heart instead of my head. This book was a real eye opener.

Since reading it, I've reviewed every one of my current investments and have taken a look back at my investing history. While I did fairly well (even during the credit crisis), I think that I could have done quite a bit better.

One thing that I will be doing is taking a long look at fund expenses. All of my funds are actively managed and, although the returns are not far off from their indexes, the expense ratios are quite high compared to index ETFs.

SEC regulations prevent me from investing outside the broker-dealer I work for. Since we can only hold certain funds in our accounts (all of them load funds on which the loads are waived) I am paying a lot more in expenses than I should.

Moving to ETF index funds whould get me at least an additional 1% annual return and I'm heading in that direction. I've just read Ferri's The ETF Book and learned a lot more about ways to cut expenses to the bone.

I've already got some passive ETF benchmark index funds in mind to replace my current funds and will be moving into them over the next few months.

This is really a must read for anyone who needs a kick in the pants to get their investing lives on track.

Asset Allocation is the latest craze in financial/investment planning. As an experienced investor who frequently out performs the S&P500, which means the bulk of financial planners/fund managers, which means the basic premise of this and most other investment books, I have 2 distinct views. Please read both before assessing me or this book.
Investments boil down to risk versus the expected reward. Generally, for credible investment vehicles, for a greater return (reward), one must expect greater volatility and instability (Real definition of risk.). If the timing in one's life is inconvenient, one can find themselves having to liquidate a very volatile investment at the worst possible moment; i.e. 12/08. Asset allocation is a plan to spread one's portfolio over a spectrum of investment vehicles to greatly reduce the risk, yet still reap most of the rewards. NOTE: risk is 'not' the probability that one might lose money.
Now, there are 3 critical premises to this concept that must be understood. These premises also shape the 'dual' nature of my review. These premises also severely shape the success of this entire concept. (1) The model was developed by grad students as a research project. By definition they had to make very simplistic assumptions, to limit the scope of their project, and to get a manageable result. That means the financial world is far more complex in reality. (2) One big assumption is that one can not do any better than the long term return of the S&P500. Every broker, financial planner, and investment book presents that as the standard. It is not true. It is merely simplistic. Actually for financial planners it is pure criminal laziness. (3) Asset allocation in its present form, assumes that the investor will not read, comprehend, or adjust to any economic events or news, during their entire investment life. For example, learning that the US economy was built on a house of financial instrument cards and that there is little to no wealth building enterprises left in this country; apparently means nothing to the average investor. Therefore, he/she will continue to maintain a 70% allocation in large cap US stocks, even while 2 major automakers file for bankruptcy.
Now my review. It turns out that most investors actually operate on premise number 3 above. Secondly most investors confuse the probability that they might lose money with the definition of risk. Thus, they invariably react exactly the opposite of their best interests in both great times and disaster. Most investors do not have the inclination to spend much time at all, if any, understanding how investments work, wealth is built, or calculating what their needs are or will be. For this kind of investor, asset allocation, even in its simplistic popular form, will work very well for them. This book is written at a technical level that is perfect for the average investor who wants to put away a sizable nest egg for their future. The allocation models, advice, and discussions, within this book, will work adequately over the long term for the above class of investor. So I highly recommend this book on that basis.
Then there are the relative minority of investors who actively become involved in their portfolios. For a person who reads, comprehends, and is able to modestly predict the consequences of major geopolitical and economic events, contemporary asset allocation is severely flawed. Following the suggestions in this book, or any other on this topic that I have read, will doom the reader to mediocre returns and dozens of missed opportunities over a life time. I predict that a person will end up with a fraction of the total accumulation of wealth that is available, by simply 'not' keeping abreast of current events. i.e. In 2008, when it was apparent that the US economy was built on a house of cards, simply reallocating a sizable chunk of one's portfolio to documented and proven strong economies (BRIC: Brazil, Russia, India, China) would have avoided sizable losses and replaced them with dramatic gains. And, it did not take rocket science for a lay person to understand that. Or, a stimulus plan that simply prints worthless paper money, to be spent on government workers bonuses and salaries, is not going to lead to a long term robust wealth building economy.
My second and negative opinion having been stated, I would still recommend this book, Edelman's "Lies about money", or other readable books on the topic. The basic concept is not a waste of time. If one understands the limitations of the premises that were made during asset allocation's conception, there is still a great deal of value to be gleaned from the idea. This book is quite readable, especially to a non-technical person. So, combining the simplistic concepts with some reason and basic common sense in today's world, I believe an investor can still extract a wealth of understanding from this book. And, that person can profit from that allocation knowledge.
Therefore 4 stars overall, 3 for the experience investor, 5 for the majority.

A useful book on asset allocation; unfortunately the author dismisses most timing and investment picking techniques.

If you are someone who cannot be bothered with constantly overseeing one's investments, asset allocation is vital. For others who are more h ands on, it is important but the dismissal of techniques used to time the market, or invest based on momentum, value and other methods is a problem.

A good but limited view on investing.