09-30-2005, 8:26 PM | Post #156345 |
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Diehard Rick Ferri, CFA, was an ex-Marine fighter pilot. He worked as a broker for 10-years before leaving Wall Street to start his own firm (www.PortfolioSolutions.com). Here are excerpts from his latest book, "All About Asset Allocation."
"A warm thanks to my cyber friends on the Morningstar.com message boards, particularly the Vanguard Diehards." (Rick has contributed nearly 4,000 posts.)
"Successful investing hinges on three steps: the developement of a prudent investment plan, the implementation of that plan, and a commitment to follow the plan in good times and bad."
"Asset allocation is the cornerstone of a prudent investment plan and is the single most important decision that an investor will make in regard to a portfolio."
"Simply stated, asset allocation is a means of spreading your investment risk across many different types of securities, thus reducing overall portfolio risk and subsequently increasing portfolio return."
"Asset allocation eliminates the need to predict the future direction of the markets and eliminates the risk of being in the wrong market at the wrong time."
"In this age of do-it-yourself finance, many novice investors skip right over the boring asset allocation process and head straight for the sexy stuff: picking stocks, bonds, and mutual funds."
"The simplest, most direct approach to managing your portfolio is the best route."
"The starting point of a portfolio is its equity and fixed-income mix."
"An investment in a total U.S. stock market fund is a solid foundation on which to base a stock allocation."
"If you are going to add only one additional U.S. common stock mutual fund to a core position in a U.S. stock market fund, I recommend placing about 30% in a small-cap value index fund."
"Because of all the extra risks involved, diversification is the key to international equity investing."
"Since capital can flow freely to most developed nations, there is no reason to believe that one market or one industry within a market is going to produce higher returns for very long."
"A well-diversified fixed-income portfolio includes a broad range of investment-grade bonds with different maturities, quality, and issuers."
"Since there are no inflation-adjusted bonds in the Lehman Aggregate Bond Index, TIPS and I-Bonds can be added."
"As a rough rule of thumb, if your combined state and federal income tax rate is 30% or more, municipal bonds may be an appropriate choice for taxable accounts."
"The best way to build the fixed-income portion of a portfolio is through low-cost bond mutual funds-particularly bond index funds."
"Real estate is one of the few asset classes that have had a low correlation with stock and bonds."
"Although the allure of a diversification benefit is enticing, there are some major obstacles to adding alternative asset classes to a portfolio."
"Commodity total return indexes have a low correlation with other asset classes, but they also have historically low returns."
"For most individual investors the (hedge fund) disadvantages of high cost, low disclosure, lack of diversification, illiquidity of some funds, and poor consistancy of performance far outweight the benefits."
"A good rule of thumb for all alternative investments is, when in doubt, stay out."
"Each investor is unique, and that means that each portfolio will be different."
"A vast array of academic studies prove that market timing does not work."
"A large majority of investment advisors have an ulterior motive, namely, selling investment products that pay them commission and fees."
"It takes only one bad investment decision to wipe out years of prudent saving and investing."
"Over the long haul, abnormal returns are sustained only through abnormal exposure to risk." (quote from Allan Greenspan).
"I will warn you that there can be a tendency to overanalyze the data in an attempt to find the perfect asset allocation."
"Fight the urge to be perfect--no asset allocation plan can be perfect."
"Putting a good plan into action today is much better than searching for a perfect plan that cannot be known in advance."
"When it comes to making money, boring can be very profitable."
"The short-term performance of financial markets is unpredictible."
"On Friday, October 16, 1987, stocks unexpectidly fell by 9%. The following Monday, prices came crashing down another 23%."
"The 'free lunch' from rebalancing is the essence of Modern Portfolio Theory."
"Past correlations are not reliable indicator of future correlations."
"During a time of extreme volatility, when you want low correlation between asset classes, positive correlation can increase dramatically."
"The real risk for individual investors is the probability of outliving their money"
"It is interesting that the returns on the S&P and the international stock mix were about equal over the period (1985-2004)."
"Over a period of 32 years, a 0.4% increase in return on a $10,000 investment earns an extra $24,600."
"Based on current economic condit
Originally posted in thread: 44385