Recently, I have been avoiding reading more investing books that were basically ‘invest in index funds, invest in index funds, invest in index funds’. Great message, but I get it already. I wanted a more detailed analysis of the different asset classes, and more advice as to what to actually buy. And so I found All About Asset Allocation by Richard Ferri, which does exactly that.
The beginning of the book starts like most other index fund books: great investment skill is very rare, asset allocation determines much of your investment return, expenses matter, and you should invest for the long term. The book also explains (better than I can here) how asset allocation works by reducing your overall portfolio risk by introducing asset classes that have a low correlation to each other.
It then moves into each asset class: US Equities, International Equities, Fixed Income securities (Bonds), and Real Estate – outlining the historical performance of each class and their sub-classes along with the historical risk and the correlation with other asset classes. It gets to the point without boring you (or at least me), and has lots of useful charts and tables. The book helps you to decide how much of each asset class you should include relative to one another, and gives you specific funds to use whether you value simplicity or you want to diversify into specific sub-areas.
For example, in the area of US Stocks, I previously discussed how adding some small-cap value funds could possibly increase your returns with no increase in volatility. Even better might be to invest in some micro-cap stocks which have even less correlation with the overall market, such as BRSIX (which I recently added to my portfolio).
Finally, Ferri helps you build a complete portfolio using this information and advises you on how to manage and rebalance it with minimal time commitment as you go.
This book delivers on what it promises, which is to help you get the best risk-adjusted returns on your money through proper asset allocation.
I initially checked this book out from the library (as I do often), and then found myself wanting to refer back it so often that I bought myself a copy. Thus, this books joins only three other books (all of which I own) with my highest rating.
Overall Rating: (ratings explained)
However, I would recommend reading these other ‘4-star’ books first if you haven’t yet been introduced to the background of index fund investing. Check out my reviews of those too:
A Random Walk Down Wall Street Book Review
Four Pillars of Investing Book Review