The Intelligent Portfolio draws upon the extensive insights of Financial Engines—a leading provider of investment advisory and management services founded by Nobel Prize-winning economist William F. Sharpe—to reveal the time-tested institutional investing techniques that you can use to help improve your investment performance. Throughout these pages, Financial Engines’ CIO, Christopher Jones, uses state-of-the-art simulation and optimization methods to demonstrate the often-surprising results of applying modern financial economics to personal investment decisions.
The Intelligent Portfolio
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Editorial Reviews
Review
"The irreverence [Jones] displays toward history as a predictor for investment is one of dozens of viewpoints that fly in the face of conventional portfolio-building wisdom." --The Star-Telegram
"A very comprehensive book which covers risk versus rewards, past performance versus future expected returns, market timing versus long term investing, and investing in individual stocks versus investing in mutual funds. He also discusses diversification, fees and expenses, and the tax consequences of investing. All of his recommendations are backed up with extensive research and presented in an easy-to-understand manner."--Stockerblog
From the Inside Flap
The key to good investment decisions is making informed choices. And while you cannot predict the future, it is possible to create investment strategies that can maximize your chances of success. In The Intelligent Portfolio, author Christopher Jones shows you how this can be accomplished.
Written with the thoughtful investor in mind, The Intelligent Portfolio draws upon the extensive insights of Jones and Financial Engines—a leading provider of investment advisory and management services founded by Nobel Prize-winning economist William F. Sharpe—to reveal the time-tested institutional investing techniques that individuals can use to help improve their investment performance. Throughout these pages, Financial Engines' Chief Investment Officer, Christopher Jones, uses state-of-the-art simulation and optimization methods to demonstrate the often-surprising results of applying modern financial economics to personal investment decisions. By illustrating the realistic range of possible investment outcomes, Jones skillfully reveals how the decisions you make today can impact your financial future.
Challenging conventional wisdom that often leads both novice and experienced investors astray, The Intelligent Portfolio builds from basic intuition on how financial markets function to practical tips on evaluating investment trade-offs and real-world advice on selecting investments to better reach your goals.
Along the way, you'll be introduced to the proven principles—a mix of common sense and counterintuitive concepts—that will put you in a better position to succeed, including:
Recognizing the link between risk and reward
Leveraging the wisdom of the market
Minimizing losses due to investment fees
Avoiding the risks of stock picking
Selecting funds using relevant forward-looking criteria
Understanding how to realistically fund financial goals
Investing tax-efficiently
And much more . . .
In addition to the information outlined throughout this book, you'll also receive a fee waiver for a one-year investment advisory account at FinancialEngines.com, so that you may apply what you've learned here to your own investment endeavors.
Through simple explanations of powerful investment ideas and real-world examples that bring them to life, The Intelligent Portfolio reveals what you need to know when making personal investment decisions. With this book as your guide, you'll quickly discover how you can effectively implement the strategies that institutional investors have known for decades—helping you achieve a brighter financial future.
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More About the Author
Christopher L. Jones (Chris) is chief investment officer and executive vice president of investment management for Financial Engines. In his role, Chris oversees the investment advice and portfolio management provided by the company to hundreds of thousands of investors. He is also the author of the book, "The Intelligent Portfolio: Practical Wisdom on Personal Investing from Financial Engines." Working closely with Nobel laureate and Financial Engines founder Bill Sharpe, Chris led a team of experts in finance, economics, and mathematics who developed the groundbreaking financial methodology that underlies the company's Online Advice and Professional Management services. Chris' team is responsible for investment analysis, financial research and development, and portfolio management. Well known in financial circles, Chris is frequently featured in investing articles in The New York Times, The Wall Street Journal, BusinessWeek, Newsweek, Fortune, Forbes, and other national and regional publications. He also regularly speaks at industry conferences and events. He holds an M.S. in business technology, an M.S. in engineering-economic systems, and a B.A. in quantitative economics -- all from Stanford University.
Customer Reviews
Most Helpful Customer Reviews
33 of 35 people found the following review helpful
Format:Hardcover
In the crowded space of personal investment books, this one distinguishes itself with some unconventional and intriguing advice. Here are some highlights I found eye-opening:
- Rebalancing is a bad idea! Rebalancing back to your 'target allocations' is effectively making a contrarian 'bet' that some assets have become overvalued and others undervalued. Such a bet against the market doesn't fit with the EMH.
- Small/value tilt isn't worth it; Midcap growth may be better! This was a shocker, as almost every asset allocation book out there advises tilting toward small/value, in keeping with the Fama/French research. But if you believe that overall market risk is the only kind worth taking, then the only 'tilt' worth making is toward asset classes with high correlation to the market and higher volatility than the market (e.g., higher 'beta'). Which, as it turns out, is Midcap growth! (and smallcap growth too, to a lesser extent)
- REITS, emerging markets, commodities -- not worth it. Again, some surprising advice. Emerging markets aren't well correlated with the overall market, so why bother with higher expenses when you can get your beta elsewhere? Ditto for REITs, which are really 1) a sector bet 2) a sector which is implicitly included in equities (all companies own real estate) and 3) a sector you're already overexposed to if you own a home. Finally, commodities -- I hardly need convincing there -- they're not a return-generating asset class at all.
So what should you focus on? Expenses, for one! The author makes a powerful case for choosing your asset classes with full awareness of the expenses of each. Again, get your beta the cheapest way you can, even if it means dropping an asset class. The foregone diversification benefit pales in comparison to the difference in expenses, in most cases. The author demonstrates this numerically.
Bottom line: this is probably the smartest book I've read in personal investing space. Although it's left me with plenty of questions to ponder, the final advice given is hard to beat.
- Rebalancing is a bad idea! Rebalancing back to your 'target allocations' is effectively making a contrarian 'bet' that some assets have become overvalued and others undervalued. Such a bet against the market doesn't fit with the EMH.
- Small/value tilt isn't worth it; Midcap growth may be better! This was a shocker, as almost every asset allocation book out there advises tilting toward small/value, in keeping with the Fama/French research. But if you believe that overall market risk is the only kind worth taking, then the only 'tilt' worth making is toward asset classes with high correlation to the market and higher volatility than the market (e.g., higher 'beta'). Which, as it turns out, is Midcap growth! (and smallcap growth too, to a lesser extent)
- REITS, emerging markets, commodities -- not worth it. Again, some surprising advice. Emerging markets aren't well correlated with the overall market, so why bother with higher expenses when you can get your beta elsewhere? Ditto for REITs, which are really 1) a sector bet 2) a sector which is implicitly included in equities (all companies own real estate) and 3) a sector you're already overexposed to if you own a home. Finally, commodities -- I hardly need convincing there -- they're not a return-generating asset class at all.
So what should you focus on? Expenses, for one! The author makes a powerful case for choosing your asset classes with full awareness of the expenses of each. Again, get your beta the cheapest way you can, even if it means dropping an asset class. The foregone diversification benefit pales in comparison to the difference in expenses, in most cases. The author demonstrates this numerically.
Bottom line: this is probably the smartest book I've read in personal investing space. Although it's left me with plenty of questions to ponder, the final advice given is hard to beat.
18 of 19 people found the following review helpful
Format:Hardcover
This is a great book for anyone who wants to gain confidence in making their own investment decisions or anyone who just wants to be able to have a smarter discussion with their financial planner.
Jones very effectively demystifies the rules of investing and stays focused on "what you need to know" to manage a retirement account or other personal investment account for the long term. He avoids chapters full of finance terms and discussion of investments that most of us shouldn't be investing in anyway. Instead, you get an engaging, smart book that you can read in a weekend that almost feels like sitting across the table and getting advice. He covers the subjects in just the right amount of depth-- you won't be left scratching your head, or feeling like you've once again been told "the rules" about things like diversification, but still don't know exactly what to do.
You'll finish this book and feel a lot more confident about your money and have a much better perspective on market headlines. Would highly recommend this read.
Jones very effectively demystifies the rules of investing and stays focused on "what you need to know" to manage a retirement account or other personal investment account for the long term. He avoids chapters full of finance terms and discussion of investments that most of us shouldn't be investing in anyway. Instead, you get an engaging, smart book that you can read in a weekend that almost feels like sitting across the table and getting advice. He covers the subjects in just the right amount of depth-- you won't be left scratching your head, or feeling like you've once again been told "the rules" about things like diversification, but still don't know exactly what to do.
You'll finish this book and feel a lot more confident about your money and have a much better perspective on market headlines. Would highly recommend this read.
13 of 14 people found the following review helpful
Format:Hardcover|Amazon Verified Purchase
This book was well written and easy to read.
The author makes the case that we would need about 1500 years of stock market return data to be able to predict stock market returns within +/- 1% with high confidence. Since we only have about 100 years of reliable data, we can predict within +/- 4% of the long term historical average. Over long 25 year time periods, stock market returns can vary by a factor of 6X or 6 times.
The author discusses the current world asset allocation of about 63:37 stocks:bonds. Interestingly enough, this is not far from the age old pension plan asset allocation of 60:40. The ratio of U.S. to foreign stocks is also about 60:40.
This author has a different opinion about periodically rebalancing a portfolio. He says rebalancing is really a market timing bet.........because you are betting against the consensus of market participants when the market asset allocation changes. He recommends rebalancing to changes in the over-all market allocation versus to a fixed stock:bond asset allocation ratio.
While conducting research for Financial Engines, they found that investors preferred having risk expressed in dollars versus percentages or sigma.
The author correctly focuses on using funds with low expenses, and he says most mutual funds have total expenses over 2% per year. He recommends adjusting your asset allocation around low expense funds...........if you are in a 401K with very limited choices. His work suggests that not investing in an asset class only costs you about 0.5% in return. If it costs you more than 1% in additional fees to get into a new asset class, then skip this asset class.
The author suggests having a maximum of 10% invested in REITs. He argues that if you own your home, you probably have no need for REITs as a separate investment.
The author also argues that commodities have a 0% expected return, so skip this asset class.
Over-all, this book is easy to read with very sound advice for investors.
In this age of full disclosure, it can be noted that I am the author and publisher of the book INDEX MUTUAL FUNDS: HOW TO SIMPLIFY YOUR LIFE AND BEAT THE PROS. This book is an introduction to the concept of index funds is and is sold on Amazon. I am also a contributing author to the book THE BOGLEHEADS GUIDE TO RETIREMENT PLANNING available from Amazon with an estimated release date of October 2009. I have also written 21 short stories on investing which are also available on Amazon.
If you want practical ideas on long term passive investing, read some of the books below:
The Richest Man in Babylon
Bogle on Mutual Funds: New Perspectives for the Intelligent Investor
The Millionaire Next Door
The Four Pillars of Investing: Lessons for Building a Winning Portfolio
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition
The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life
The Bogleheads' Guide to Investing
The author makes the case that we would need about 1500 years of stock market return data to be able to predict stock market returns within +/- 1% with high confidence. Since we only have about 100 years of reliable data, we can predict within +/- 4% of the long term historical average. Over long 25 year time periods, stock market returns can vary by a factor of 6X or 6 times.
The author discusses the current world asset allocation of about 63:37 stocks:bonds. Interestingly enough, this is not far from the age old pension plan asset allocation of 60:40. The ratio of U.S. to foreign stocks is also about 60:40.
This author has a different opinion about periodically rebalancing a portfolio. He says rebalancing is really a market timing bet.........because you are betting against the consensus of market participants when the market asset allocation changes. He recommends rebalancing to changes in the over-all market allocation versus to a fixed stock:bond asset allocation ratio.
While conducting research for Financial Engines, they found that investors preferred having risk expressed in dollars versus percentages or sigma.
The author correctly focuses on using funds with low expenses, and he says most mutual funds have total expenses over 2% per year. He recommends adjusting your asset allocation around low expense funds...........if you are in a 401K with very limited choices. His work suggests that not investing in an asset class only costs you about 0.5% in return. If it costs you more than 1% in additional fees to get into a new asset class, then skip this asset class.
The author suggests having a maximum of 10% invested in REITs. He argues that if you own your home, you probably have no need for REITs as a separate investment.
The author also argues that commodities have a 0% expected return, so skip this asset class.
Over-all, this book is easy to read with very sound advice for investors.
In this age of full disclosure, it can be noted that I am the author and publisher of the book INDEX MUTUAL FUNDS: HOW TO SIMPLIFY YOUR LIFE AND BEAT THE PROS. This book is an introduction to the concept of index funds is and is sold on Amazon. I am also a contributing author to the book THE BOGLEHEADS GUIDE TO RETIREMENT PLANNING available from Amazon with an estimated release date of October 2009. I have also written 21 short stories on investing which are also available on Amazon.
If you want practical ideas on long term passive investing, read some of the books below:
The Richest Man in Babylon
Bogle on Mutual Funds: New Perspectives for the Intelligent Investor
The Millionaire Next Door
The Four Pillars of Investing: Lessons for Building a Winning Portfolio
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition
The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life
The Bogleheads' Guide to Investing
Most Recent Customer Reviews
Best helpful advice I have ever read or received !
This is one of the best investment books I have ever read ! Period !
Mr. Christopher Jones has the working person's interest at heart (especially those of us who are... Read more
Mr. Christopher Jones has the working person's interest at heart (especially those of us who are... Read more
Published 8 months ago by Henry
These Engines need oil
I initially read the book two years ago, and at the time saw a lot to disagree with. After reading it again, there are certainly some great points, but the questionable points seem... Read more
Published 20 months ago by 70zboy
This book is great!
I highly recommend this book. I have read a number of books on investing over the last two years, and this is one of the best. Read more
Published on September 12, 2009 by Satisfied Customer
Intelligent Portfolio Review
For some background, I have very complete education in finance, including emphasis in both undergrad and graduate school, as well as a CFA. Read more
Published on August 19, 2009 by Boston Paul
Book review
I have been investing using Modern Portfolio Theory (MPT) for over 20 years and have read many books on this subject. Read more
Published on October 30, 2008 by Erwin
Unconventional thinking
These are the unconventional investment ideas that I found this book very unique:
1. Portfolio rebalancing means unintended bet against the market.
2. Read more
1. Portfolio rebalancing means unintended bet against the market.
2. Read more
Published on August 24, 2008 by L. Koh
Perfect for judging personal investments
Chris Jones covers all the bases related to investment choices based upon what's best for the personal investor rather than the financial advisor. Read more
Published on August 13, 2008 by S. Cavote
Passive investing is the way to go......
This book does a number of things well.
1) it offers a great overview of the basics of personal investing (historical and future market performance factors, the roles of... Read more
1) it offers a great overview of the basics of personal investing (historical and future market performance factors, the roles of... Read more
Published on July 9, 2008 by Richard J. Boubelik
The Intelligent Portfolio
We have used Financial Engines for tracking and planning since the initial article about it in Wall Street Journal many years ago. Read more
Published on June 18, 2008 by James Saville
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Key Phrases - Statistically Improbable Phrases (SIPs):
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initial investment, smart diversification, equity portfolio, historical performance relative, annual portfolio turnover, required annual savings, mortgage bonds, possible portfolio outcomes, similar bond funds, good manager performance, median portfolio value, confidence costs money, adjusted market portfolio, expected return lost, market timing bets, investment style benchmark, average investment style, consensus expected returns, underlying investment style, highest risk portfolio, similar investment styles, downside values, future fund performance, asset class exposures, same investment style Key Phrases - Capitalized Phrases (CAPs): (learn more)
Financial Engines, Legg Mason Value Trust, United States, Good Ones, Monte Carlo, Years Upside, The Wisdom of the Market, Merrill Lynch, Cox International Stock Fund, Bond Fund of America, Cash Balance, Uncle Sam, Growth Fund, Personal Online Advisor, Primary Exposures, Marriot International, Ranking Fund Attributes Value, Predicted Performance Relative, Fidelity Intermediate Government Income, American Century Income, Rowe Price Small-Cap Stock Fund, Fidelity Spartan, International Stocks, International Emerging Market Equity Fund, Common Stock Browse Sample Pages:
Front Cover | Front Flap | Table of Contents | First Pages | Index | Back Flap | Back Cover | Surprise Me!
initial investment, smart diversification, equity portfolio, historical performance relative, annual portfolio turnover, required annual savings, mortgage bonds, possible portfolio outcomes, similar bond funds, good manager performance, median portfolio value, confidence costs money, adjusted market portfolio, expected return lost, market timing bets, investment style benchmark, average investment style, consensus expected returns, underlying investment style, highest risk portfolio, similar investment styles, downside values, future fund performance, asset class exposures, same investment style Key Phrases - Capitalized Phrases (CAPs): (learn more)
Financial Engines, Legg Mason Value Trust, United States, Good Ones, Monte Carlo, Years Upside, The Wisdom of the Market, Merrill Lynch, Cox International Stock Fund, Bond Fund of America, Cash Balance, Uncle Sam, Growth Fund, Personal Online Advisor, Primary Exposures, Marriot International, Ranking Fund Attributes Value, Predicted Performance Relative, Fidelity Intermediate Government Income, American Century Income, Rowe Price Small-Cap Stock Fund, Fidelity Spartan, International Stocks, International Emerging Market Equity Fund, Common Stock Browse Sample Pages:
Front Cover | Front Flap | Table of Contents | First Pages | Index | Back Flap | Back Cover | Surprise Me!
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