Customer Reviews

Asset Dedication: How to Grow Wealthy with the Next Generation of Asset Allocation

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I have begun using the Asset Dedication principles with my clients. It is easy for uneducated investors to understand the concepts. It provides for them the guareenteed security (using Treasury Bonds) that their income is provided for years ahead. The Asset Dedication website guides me in selecting an efficient bond ladder portfolio for each client's needs.

I look forward to using the "rolling" bond ladder in years ahead when interest rates are hopefully higher to create an even more efficient portfolio.

Client used to leave an appointment "hoping" that their selection of Bonds vs. Stocks proportions was appropriate. Now they walk away saying that they have a certain number of years of income set aside and are therefore comfortable with the volatility of the growth portion of their portfolios. They are comfortable because we have "bought time" which is an essential ingredient to growth.

If you have ever wondered exactly how much or how little science is used in determining the asset allocation formulas that your broker recommends, this book should be revealing. We, the authors, began to get suspicious about the wide spread use of the strategy when different brokers recommended different allocation formulas for the same person. If you went to three different optometrists, you would not expect to get three different prescriptions for your glasses. One of the hallmarks of science is replication of results under identical circumstances.

So we read the original academic papers that popularized asset allocation, reviewed its many critics, and used historical comparisons to test asset dedication against asset allocation, with its fixed-formula, rebalancing approach. Asset dedication is an investment strategy that has been used for years by high-end financial professionals who must manage cash flow demands, the same problem retired people face.

Lo and behold, the asset dedication strategy beat all asset allocation strategies with less than 80 percent stocks in the majority of decades over a variety of time periods from 2003 back to 1990, 1976, 1947, and 1926 using only US Treasury bonds and index funds. Asset dedication is also a low cost, passive strategy that has no "magic formulas." No wonder the pros who have to deal with cash flows prefer it. Asset dedication is to asset allocation what passive index funds are to active mutual funds - cheaper, easier, and better. Its superior performance based on our statistical research compelled us to report the results. That is why we wrote this book.

The book describes in detail how asset dedication is designed to deal directly with the investment situation that retired people or those nearing retirement face. It will produce identical recommendations for identical circumstances and creates a designer portfolio customized to each investor's specific individual needs rather than using a one-size-fits-all "model portfolio" approach.

The book also introduces the "critical path" concept for retirement planning by younger people and is supported by an online web site (www.assetdedication.com). Professional financial planners are now beginning to look to asset dedication as either the next generation of asset allocation or a whole new paradigm in personal investment strategy. It works. The evidence is in the book. See for yourself.

Asset Dedication by Dr. Stephen J. Huxley is a must read for anyone contemplating retirement and for those who must manage money during retirement years. This book is written in a style that is easy to understand and grasp, and does not assume that the reader be a major in economics. The book is written in a clear lucid style and provides a very helpful education.

What is novel about the book is that it shows for the first time, that it is possible to invest retirement savings in a manner that they meet the unique needs of each retirement situation. In other words, the books does not blindly advocate an asset mix as those found commonly on almost all mutual fund sites.

The books advocates setting aside the appropriate mix of investments in high quality Bonds, while at the same time providing exposure to Index Stock Funds. But, there is no set magic ratio like 20/80 or 40/60 for Bonds/Stocks. Instead the book advocates and shows how you can set aside just enough money for income generation while at the same time gaining exposure to the stock market in increments of 3-10 years. The basic idea is to generate income for living expenses while at the same time gaining exposure to the stock market for adequate length of time. The book does not rely on just opinions. There is plenty of hard data and analysis to back up its premises.

The calculations provided in the book can also be carried out on the Internet Site for those who would like to play out different scenarios of accumulated savings and interest rates.

This book is a must read for anyone seriously contemplating retirement or anyone who is actively managing ones accumulated savings during retirement years. It provides a different working plan and perspective and one that should be reviewed.

This book is a must read !

I highly recommend this book! This is one of the top three most thought provoking personal investment books along with Malkiel's Random Walk Down Wall Street and Berstein's Intelligent Asset Allocator. Having spent more time than I care to admit reading too many investment books that neither deliver on their titles' expectations nor present any real new thinking, I believe this book is a breath of fresh air in the investing world.

Authors Huxley and Burns cast aside the ambiguity inherent in Asset Allocation Theory and replace it with a practical set of concepts on personal investing. Asset Dedication offers a guide on how to explicitly dedicate asset classes (cash, bonds and stocks) for particular purposes based on each investor's goals. By following the concepts presented, the personal investor can build a solid financial bridge into retirement without giving away their hard-earned savings through too-frequent trading or relying on the sometimes-shady world of annuities.

The ideas are straightforward and simple, and the material provides a breakthrough concept for the mainstream investment community. Huxley and Burns are offering us a glimpse into the near-future of personal investing. You will not be disappointed!

This book promises nirvana and doesn't quite deliver. It sounds fantastic. Lock in a rock-solid income for ten years, yet still beat a 70/30 portfolio (70% stocks, 30% bonds) time after time. Security and great returns. No wonder a reference to Einstein, new ideas, and 'faced similar resistance' pops up early (the second sentence in fact). It sounds too good to be true, and it is.

The method works like this. Decide the return and how many years security you want (say 5% for ten years). Build yourself a bond ladder to deliver this safely (the author is not a fan of buying annuities). Then you can relax and invest what's left over in the S&P500. It turns out the bonds and cash take around 50% of your portfolio. So straight away there is a 50/50 split. And it gets worse (or better, in rising markets). As the bond ladder unwinds (all the bonds are sold off over the ten years), the equity allocation climbs and climbs, zooming through 90%, 95%, and presumably (the author's a bit coy about this bit) hitting 100% on the witching hour - midnight on 31st December every ten years. And then the whole process repeats again. So on average, over the ten years, nervous pensioners Mr and Mrs Smith actually do have around 75% of their portfolio in stocks. No wonder they are doing well in up markets. And coming back to the stockmarket just once every 10 years to reload their bond ladder does smooth the returns - but now and again things go wrong. In one example the Smiths remaining stocks are worth, in 2000, $1.8million after the ten years are up, but their neighbours who invested a year later, would discover in 2001 that their stocks were worth 33% less. And by 2002 their neighbour's portfolio would have dropped another 35%. These tenth anniversaries are when they are meant to go back and sell half their stocks portfolio to fund the next ten-year annuity. Its when investors are most vulnerable. Get your start year wrong and you will regret it for the rest of your retirement. Dr Huxley's strategy is much more sensitive to market timing, and volatile (anyone got the 1998-2002 figures?), than is immediately apparent.

The good news is that most of his clients will have done well - many will have avoided the toxic sting of the S&P occasionally misbehaving badly because they revisit it so rarely. And they will have slept soundly because they have a `guarantee'. In essence the Huxley revolution is this ` Invest in a do-it-yourself 10year annuity. Invest ALL the rest in stocks. Repeat every 10 years. Keep fingers crossed'. Einstein it ain't.

Asset Dedication strikes a new note in personal financial planning. It makes sense that many brokers try to keep financial planning murky so that uninformed investors will buy their sales pitch and brokers continue to profit from the commissions. No doubt it will raise the hackles of many brokers who rely on investor ignorance to earn their living, and those with a vested interest in the status quo will no doubt take every opportunity to discredit the book. To the public, I urge you to read this book and learn it for yourself before solely relying on "professional's" advice.

Based on the principle of dedicated portfolios, which institutions have used for years, asset dedication provides a rationale for a specific allocation of funds to stocks, bonds and cash based on their time horizon. Enough bonds are purchased to provide a secure income stream over the horizon. For anyone who bothers to read past the first 30 pages, they will find that although a fixed horizon of, say, ten years, is one option, investors would likely be more comfortable with "rolling" horizons. In a rolling horizon plan, they buy a new bond at the end of each year (or so) to extend the stream of secured income another year (or so) and keep the horizon at a constant ten years. Even more compelling is the fact that when compared to the stale asset allocation formulas, the dedication strategy ends up beating portfolios with 70 percent or less in stocks most of the majority of time (back to 1926).

The chapters on the "critical path" are extremely informative. They explain how a person can monitor their portfolio to make sure it is on track to meet their goals without getting worried about market volatility. The fresh ideas and empirical evidence based on research in this book set it apart from the hundreds of tired asset allocation books that add little to what is already known. This book breaks new ground and may be only the first in a long line of new studies on asset dedication. It deserves its five star rating.

Similar to "Buckets of Money" this books shows that "Asset Allocation" will not assure your life savings to the end of your life. This approach basically is the Two Bucket version of "Buckets of Money" In fact the author of that book, endorses this Asset Dedication book in so far that it validates his approach. Also has links to web site that helps you develop your portfolio.

This book contains one of the most original and common sense investing ideas that I've read. The concept is to entirely eliminate bond market risk from your portfolio while protecting your retirement cash flows. Although the assumptions about the stock market risk should be revisited after the last year, the ideas are still equally valid.

I highly recommend this book to anyone looking to retire in the next five years. Just keep in mind that this is not meant to be a comprehensive retirement planning book; only a look at how fixed income assets should be used in a retirement portfolio.

I was looking through the book section for books on asset allocation and stumbled across this book. This book is a new way to look at asset "dedication" (can't say allocation, that is taboo in this book) The jist of this book is to define a lump sum goal dollar amount for retirement. You'll use this lump sum in addition to what you think you'll receive annually from Social Security and pension and whatever else. You'll then use this total amount of money to determine an annual amount that you can withdraw and live comfortably with until the grim reaper shows up.

For example, you are 45, you have $100,000 saved in your 401K, you retire when you are 65. You determine that when you retire at 65 you'll need $40,000 per year after you receive $20,000 year from Social Security and $12,000 from your pension to live comfortably. You project that you will live until 90 years old. So, to acheive a $40,000 income stream from age 65 until 90, you will need $800,000 in your 401K when you hit 65 (This isn't the actual number, just a very rough estimate). When you hit 65, you'll use whatever portion of the $800,000 you saved to create a T-Bill ladder to ensure that you'll guarantee that $40,000/yr income stream for a predetermined horizon (say 10 years) and then place the remainder of your retirement money in stocks (for a hopefully better return). While you are receiving your bond income plus the principal from the annually maturing T-Bills, your stocks should be making an average of 10 - 12% over the same period. In a rolling horizon scenario, you annually roll the 10 year T-bills while slowly eroding your stock principal as necessary to maintain your desired, predetermined annual income of $40,000. If you did all the numbers right on the initial plan and you croak "on time as predicted (90yo in the example)" you should end up with zero $$$ or whatever amount you decided to leave for your heirs.

I gazed thru the book initially and thought it looked a little dry but the harder I looked at it, I found it was packed with great ideas and approaches to retirement I hadn't thought of such as "Once you reach your target retirement amount, don't let greed get the best of you, sell your stocks and take your target retirement amount that you luckily reached and start rolling it in T-Bill ladders" For example, if you hit $800,000 goal before age 65, say age 60, keep building your 401K account but lock in your "winnings" by T-Billing all $800,000 for safety from a market collapse at an inopportune time. Sounds simple but it is effective. There are a bunch of other interesting ideas that I found useful too.

This book isn't the holy grail but does have a lot of valuable info.

My apologies to the author if I didn't get the mechanics of the system exactly right....

This book is well written and really changes the way you think about asset allocation. The book shows in many ways how the traditional asset allocation model of x % bond funds, y % stock funds may not be the best way to allocate assets. Instead, using some basic math investors should consider a laddered portfolio of bonds so that the stock portion of the investor's portfolio has time to grow. This strategy overcomes the inevitable ups and downs of the stock market by increasing the holding period for the stocks.