Book Review: All About Asset Allocation

All About Asset Allocation Book CoverRecently, 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.

Conclusion
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: 4 Stars (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

Comments

  1. Hi Jonathan, the BRSIX link is broken.

    I recently finished this book too, one of my favorites as well.

  2. Thanks, fixed.

  3. Anonymous says:

    Does it have commodity futures? Those are a very promising asset class because of their inflation protection and negative correlation with stocks.

  4. Anonymous says:

    Also, does what risk metrics does he use? Standard deviation or downside?

  5. For those who want a taste of Ferri’s writing check out his free online book:

    http://www.portfoliosolutions.com/v2/main.aspx?id=books/seriousmoney

  6. I just finished reading the book. It does mention commodities, but Ferri doesn’t like them because over the long term they have simply kept up with inflation with alot of volitility. They are negatively correlated with stocks, however their reward (historically) is not worth owning them.

    I liked the book, I think its def worth the time of getting it from the library, I however bought mine too.

  7. How funny, I always wondered how people comment in the wrong post, but I just did it myself. Anyways, it was…

    Risk is measured by volatility, standard deviation.

    Yes, it does also discuss alternative investments including commodities futures, although not really favorably due to their historically low returns.

  8. It is completely random that I came across your website, but what is even more random is that you have read this book, and bought it for yourself. The reason it is random is because Rick Ferri is actually my father. If you haven’t already, you should read his free online book “Serious Money” and check out “Protecting Your Weath”. Both offer some sage investment advice. A lot of which you have touched on in your website postings. Excellent website by the way!

Trackbacks

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  2. [...] All About Asset Allocation is written by Richard Ferri, CFA, who is also the president of his own investment advisory service. If you really want to know about how each asset class interacts with one another, I really recommend this book. [...]

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  4. Free Investing Book - Serious Money by Richard Ferri » My Money Blog says:

    [...] Ferri, author of the book All About Asset Allocation that I just reviewed, is currently offering a free online version of another of his books, Serious [...]

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