Balanced Asset Allocation. Lee Bill

p>Alex Shahidi

      Balanced Asset Allocation: how to profit in any economic climate

Additional Praise for Balanced Asset Allocation: How to Profit in Any Economic Climate

      “If you have been interested in understanding how balanced risk asset allocation works, you will want to pick up this clearly written and informative book.”

– Dr. Vineer Bhansali, Managing Director, Portfolio Manager and head of Quantitative Investment Portfolios, PIMCO, and author of Tail Risk Hedging as well as three other financial books

      “Alex Shahidi has written a book which, while easy enough for the general investor, offers some deep insights which too many professional investors overlook. Stocks and bonds do not comprise a diversified portfolio; inflation can savage both. What we would call a “third pillar,” a diversifying bulwark against inflation, is a necessary part of any sensible portfolio, especially in today's low-yield environment. Historical returns, risks, correlations, and quantitative tools for manipulating these same data, offer a very poor guide for the future. Past is not prologue.”

– Rob Arnott, Chairman, Research Affiliates

      “Alex is a humble, intelligent, thoughtful and passionate investor advocate.”

– Fran Kinniry, CFA, Principal, Senior Investment Strategist, Vanguard

      The Wiley Finance series contains books written specifically for finance and investment professionals as well as sophisticated individual investors and their financial advisors. Book topics range from portfolio management to e-commerce, risk management, financial engineering, valuation and financial instrument analysis, as well as much more. For a list of available titles, visit our Web site at www.WileyFinance.com.

      Founded in 1807, JohnWiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers' professional and personal knowledge and understanding.

Balanced Asset AllocationHow to Profit in Any Economic Climate

      ALEX SHAHIDI

      Cover image: Wiley

      Cover design: © iStockphoto.com/Sergey Nivens

      Copyright © 2015 by Alex Shahidi. All rights reserved.

      Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

      Published simultaneously in Canada.

      No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at http://www.wiley.com/go/permissions.

      Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

      For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at [phone], outside the United States at [phone] or fax [phone].

      Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.

       Library of Congress Cataloging-in-Publication Data

      Shahidi, Alex.

      Balanced asset allocation: how to profit in any economic climate / Alex Shahidi; [foreword by] Ray Dalio.

      pages cm. – (Wiley finance)

      ISBN 978-1-118-71194-1 (hardback) –ISBN 978-1-118-71217-7 (ePDF) –ISBN 978-1-118-71202-3 (ePub)

      1. Finance, Personal. 2. Investments. 3. Portfolio management. I. Title.

      HG179.S42577 2014

      332.6–dc23

      2014029359

      Foreword

      Let's face it – everyone needs a catalyst now and then. For me, this book has been a wake-up call; it has heightened my awareness of the risks in the portfolios I manage, and reminded me that managing money is as much art as it is science. Reading Balanced Asset Allocation has both reinvigorated my perspective related to constructing portfolios, but also given me valuable insights into how the portfolios could react under different economic conditions. Balancing risks and diversifying is what my job is all about. As an institutional investor, I have put the concepts of this book to work in the portfolios I manage. But as the saying goes, the cobbler's children have poor shoes, and I need to do a better job in my personal portfolios.

      By explaining how to balance the risks in a portfolio, Alex has written a book that is completely accessible and useful across a wide spectrum of investors. Both the institutional investor managing billions and the average investor saving for retirement over a long time horizon can benefit. You don't need a lot of math skill to implement a balanced portfolio. The recipe is right here in the book. Alex does a wonderful job explaining why the economic machine works the way it does. You don't have to know the volatility of the stock market or the bond market, although the book spends time showing the reader how the numbers work if they are so inclined. The problem with the way we currently invest our portfolios is that they are too dependent on stock market risk. This book shows us a different path. We can construct portfolios with less stock market risk and over time, be fairly confident of achieving similar returns with fewer ups and downs.

      What I like about the risk parity concept, pioneered by Bridgewater Associates, is that it explicitly addresses the real world economic events that impact our portfolios, and gives us options when traditional diversification efforts may not always work. The economic machine that produces rising and falling growth and rising and falling inflation, are the big four scenarios that our portfolios should be built to withstand. By balancing risks to these four economic scenarios and rebalancing as necessary, we don't have to worry so much about which stocks are correlated and which bonds are correlated. Correlation is one of the most difficult statistics to rely upon – especially in times of market stress. A balanced portfolio is a different and vitally important way to look at investing. Reading this book will open your eyes to a new perspective. I found it to be a useful and enjoyable read.

– Bill LeeCIO, Kaiser Permanente

      Acknowledgments

      I wrote this book with the intention of sharing core investment concepts that I thought might be informative for the majority of investors.