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The Intelligent Portfolio: Practical Wisdom on Personal Investing from Financial Engines Hardcover – May 2, 2008

4.4 out of 5 stars 20 customer reviews

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Editorial Reviews


"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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Product Details

  • Hardcover: 386 pages
  • Publisher: Wiley; 1 edition (May 2, 2008)
  • Language: English
  • ISBN-10: 0470228040
  • ISBN-13: 978-0470228043
  • Product Dimensions: 6.4 x 1.2 x 9.3 inches
  • Shipping Weight: 1.4 pounds (View shipping rates and policies)
  • Average Customer Review: 4.4 out of 5 stars  See all reviews (20 customer reviews)
  • Amazon Best Sellers Rank: #1,095,327 in Books (See Top 100 in Books)

Customer Reviews

Top Customer Reviews

By Artephius (. VINE VOICE on June 30, 2008
Format: Hardcover 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.
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Format: Hardcover
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 more pronounced now. Great points are made on establishing the right level of risk, avoiding individual stocks, and avoiding funds with high fees. The author also makes a great point (how right he was!) on still leaving the issue on whether the outperformance of Legg Mason Value Trust for 15 consecutive years was due to skill or chance. The author points out that active mananaged funds in most instances fail to beat an index fund over longer periods of time, but as a tease, points out a few examples of individual fund outperformance but does not list longer term outperformers when it could have been easy to do.

Most disturbing is the Chapter on the "Wisdom of the Market". Investors are not supposed to "be careful" about rebalancing becasue it is "a bet against the market" and the "market portfolio". Well, what if the market is wrong as it often is? Rebalancing is probably what got most investors through the last decade, and enabled them to hold equity assets though the worst of the decline. There are some markets of course where an investor is better off not rebalancing (one way markets), but in brutal bear market the comfort of knowing you sold part of an asset class much higher can enable you to ride out the bear. Do not give too much respect to the "market portfolio" - be concerned with your portfolio, and your attempts to meet your investment objectives over the longer run.

Also, disappointing is no mention of fundamental, valuation and technical measures of different markets. Are these issues not important when making portfolio decisions? In the short run, these issues may not matter.
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Format: Hardcover
These are the unconventional investment ideas that I found this book very unique:

1. Portfolio rebalancing means unintended bet against the market.

2. Presented the portfolio risk not as standard deviation of return, but versus that of market portfolio.

3. Hierarchical approach of investment (asset allocation first then investment selection) is not a good idea. Reason being: 1. Asset allocation likely assuming zero cost index fund as a guide. 2. Assuming each fund can fit into single asset class. 3. Asset allocation is paramount to investment selection regardless of the quality of investment selection. 4. Approach frequently ends up with actively managed and high fee fund.

4. Alternative investment not necessarily a good diversification due to risk and cost.

5. Financial Engines does not put funds into rigid asset class categories but rather use techniques to create a weighted peer group of funds based on how close the investment style (risk relative to market portfolio) is to the fund in question, and then rank funds on various measures (expenses, fund-specific risk, performance, turnover).

Overall, the book is very enlightening to both novice and professional investors without digging into complicated mathematics!
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Format: Kindle Edition Verified Purchase
I found this book to be the best I have read to date on individual investing, asset allocation and portfolio management after years of struggling with investment decisions. Most of my prior judgement and errors in investing seems to have come from a lack of understand of the risks of purchasing individual stocks and knowledge of various asset allocation strategies; and so my prior investments in the stock market seemed more like gambling than investing. I found the information in this book great for helping me build my current portfolio; and there is little doubt that if I had read this book 30 years ago my retirement portfolio would be much larger than it is today.

This book also comes with a (free) one year subscription to the Financial Engines retirement planner. I found this online tool to be very useful; but it could be better. One of the things I found the most dissatisfying about the online planner what the fact that the recommendation engine, when building a portfolio, has zero ETFs in their database. Financial Engines does not think this is serious gap; but I do. For example, this book discusses in great detail the importance of looking at the expense ratio for a fund before investing and, in general, strongly advocates the picking funds with low expense ratios. However, it is a kind of irony that the Financial Engines recommendation engine has zero (no) ETFs in their database; most of which have lower expense ratios than the myriad mutual funds in their recommendation engine. When I asked their customer service team about this via email, the reply was basically "we don't want to build our database large with so many ETFs" (or something to that effect). This was really annoying to me since I tend to build my entire portfolio with ETFs.
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