Contents

About the author

Rick Ferri is a CFA, president of Portfolio Solutions, LLC, and an adjunct professor of finance at Walsh College in Michigan. He is a frequent contributor to the Bogleheads™ Forum. He is author of five other books: The Power of Passive Investing: More Wealth with Less Work ; All About Index Funds ; The ETF Book: All You Need to Know about Exchange-Traded Funds ; Protecting Your Wealth in Good Times and Bad (out of print), and Serious Money: Straight Talk About Investing for Retirement (an online e-book).

Table of contents

Part 1: Asset Allocation Basics Chapter 1. Planning for Investment Success

Chapter 2. Understanding Investment Risk

Chapter 3. Asset Allocation Explained

Chapter 4. Multi-Asset-Class Investing

Part 2: Asset-Class Selection Chapter 5. A Framework for Investment Selection

Chapter 6. U.S. Equity Investments

Chapter 7. International Equity Investments

Chapter 8. Fixed-Income Investments

Chapter 9. Real Estate Investments

Chapter 12. Building Your Portfolio

Chapter 13. How Behavior Affects Asset Allocation Decisions

Chapter 14. Investment Expenses and Professional Advice

Appendix A. Low-Cost Mutual Fund Providers

Appendix B. Research Web Sites

Appendix C. Recommended Reading

Book summary

Part 1 of the book encourages passive investing and explains risk, volatility, diversification, correlation and shows historic risk vs. return charts. It then introduces multi-asset investing and shows how the introduction of asset classes (US stocks, international stocks, corporate bonds) affects risk/return.

Part 2 discusses key concepts in asset allocation: that low correlation assets with unique risks provide the best risk diversification, which is what asset allocation is all about. Then determine the appropriate mix of equity and fixed-income, choose assets with low correlation, and rebalance regularly.

The next 5 chapters discuss each asset class in turn. Each chapter shows historic returns, and historic correlations with other assets. At the end of each chapter is a sample of recommended, low-cost funds.

Chapter 6 explains the size and style classification, small and value risks, and how they diversify a total market portfolio of U.S. stocks. Chapter 7 covers international stocks, the various world regions, and currency risk. Chapter 8 discusses the bond market, U.S. and international, and explains the various risk measures with bonds. Chapter 9 talks about domestic REITs and their correlation with US stocks and treasuries. Also discussed is home ownership. Chapter 10 discusses commodities, hedge funds and collectibles. Although commodities provide diversification, Rick concludes that their current high costs and low overall return probably outweigh their value.

Part 3 covers the mechanics of building your portfolio. It starts out with a chapter on estimating future inflation, interest rates and equity returns based on a number of different methods. Chapter 12 suggests portfolios for four groups, like the Boglehead’s Guide, early and mid-life accumulators, and early and late retirees. For each, two sets of portfolios are offered, one using 4-6 simple, total market funds, and the other a slice and dice approach with about a dozen funds. Ranges are given for conservative, moderate and aggressive investors.

Chapter 13 discusses behavioral finance, primarily concerning how to determine your risk-tolerance, working through a realistic example of a hypothetical portfolio during the period 1999-2002.

The book finishes with a discussion of mutual fund expenses and fees, taxes and asset location, and tips on hiring an investment manager.

Appendices list recommended web sites and books for further reading.

Readers comments

This was an enjoyable book to read. It’s loaded with data and charts, but nevertheless easy to read. Bernstein’s Intelligent Asset Allocator is one of my all time favorite books, and I think Rick’s book probably tops it: it’s more up-to-date, includes REITs and commodities, and discusses how correlations are changing over time (many other books will show 1970-2000 and 1984-2000, but Rick charts continuous rolling correlations).