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The Intelligent Portfolio
Practical Wisdom on Personal Investing from Financial Engines
Christopher L. Jones (Author), William F. Sharpe (Foreword by)
9780470228043, Wiley
Hardback, published 27 May 2008
384 pages, Drawings: 47 B&W, 0 Color; Screen captures: 1 B&W, 0 Color; Tables: 73 B&W, 0 Color
22.6 x 15.2 x 3.3 cm, 0.612 kg
"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
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.
Foreword ix Preface xi Acknowledgments xvi Introduction to Financial Engines xviii Chapter 1 Now it’s Personal 1 A Changing World 2 The Grand Social Experiment: 401(k) 6 The Knowledge Gap 7 The Traditional Advice Model 8 Institutional Tools of the Trade 10 Chapter 2 No Free Lunch 25 I’ll Take the one with the Highest Return. . . 26 A Little Bit of Latin: Ex-Ante and Ex-Post 28 How are the Prices of Risky Assets Set? 29 The Link Between Risk and Return 31 When High Risk does not Mean High Return 34 Hidden Risks and the Peso Problem 36 How Much Risk Am I Taking? 38 Risks and Returns of Different Assets 42 Does it Pass the Blush Test? 47 Chapter 3 History is Bunk 49 History and Expected Returns 51 The Past is not the Future 52 History is Sometimes not What it Seems 55 Investing with Perfect Hindsight 57 The Lucky and the Skillful 60 Chapter 4 The Wisdom of the Market 73 The Efficient Market? 74 What is the Market Portfolio? 78 What does the Market Portfolio Look Like? 79 There’s no Place Like Home 81 History of the Market Portfolio 83 Betting Against the Market 85 Avoiding Unintentional Bets 87 Risk and the Market Portfolio 89 The Market’s View of Future Returns 91 Market Portfolio Simulations 97 Final Thoughts 98 Chapter 5 Getting the Risk Right 101 How to Measure Risk 103 Asset Mix and Short-Term Loss 106 Risk and Portfolio Outcomes 109 Risk and Time Horizon 113 Factors to Consider in Selecting a Risk Level 120 Examples of Informed Investor Behavior 121 Chapter 6 An Unnecessary Gamble 125 A Different Sort of Beast 128 The Risk of Individual Stocks 130 The Implications of Individual Stock Risk 132 Expected Growth Rates 136 The Biggest Mistake in Retirement Investing 142 What About More Than One? 144 Do You Feel Lucky? 149 How to Invest in Stocks Safely 150 Hidden Costs 152 Dealing with Unwanted Stock Risk 154 Chapter 7 How Fees Eat Your Lunch 157 It’s Basic Arithmetic 158 Big Business 160 For Every Winner there Has to Be a Loser 161 It Still Adds Up to Dollars 164 A Wide, Wide World 167 How Fees Eat Your Lunch 168 It’s a Heavy Load to Bear 175 Fees and the Bigger Picture 176 Practical Considerations 179 Chapter 8 Smart Diversification 183 The Goals of Diversification 184 The Big Picture 185 Why Hierarchy is Bad for Portfolios 189 The Value of Asset Class Diversification 193 Diversification Ain’t What it Used to Be 197 Diversification and Investment Choices 198 The Big Picture: Part II 205 The Search for Better Diversification 211 Chapter 9 Picking the Good Ones 221 The Stuff that Matters 224 It’s About the Future 227 Risk Tolerance and Fund Choice 227 Investment Style 228 Fund Expenses 232 Predicting Mutual Fund Performance 233 Rating Funds 236 Putting the Pieces Together 257 What it Takes to Rank Among the Best 259 Chapter 10 Funding the Future 263 The Benefits of Being Flexible 264 Taxable and Tax-Deferred Savings 266 How Much do you Need? 269 From Wealth to Income 271 The Myth of Absolutes 275 Risk, Time, and Savings 281 What it Takes to Get there 291 Chapter 11 Investing and Uncle Sam 295 Why you don’t Want to Minimize Taxes 297 How Taxes Impact Investment Returns 298 The Impact of Personal Tax Rates 301 Tax Efficiency of Asset Classes 303 Asset Placement 306 Mutual Fund Tax Efficiency 308 Municipal Bonds 312 Capital Gains and Losses 316 Putting it All Together 319 Chapter 12 Wrapping it Up 321 Appendix The Personal Online Advisor 331 Notes 335 Glossary 347 About the Author 357 Index 359
Subject Areas: Finance & accounting [KF]
