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Digital Wealth

Book Description

Leverage algorithms to take your investment approach to the next level

Digital Wealth: An Automatic Way to Invest Successfully reveals core investment strategies that you can leverage to build long-term wealth. More than a simple review of traditional investment strategies, this innovative text proffers digital investment techniques that are driven not by people but by algorithms. Supported by asset allocation research, the secrets shared in this forward-thinking book have underpinned cutting-edge investment firms as they integrate algorithm-based strategies. In addition to presenting key concepts, this groundbreaking resource explains how these concepts can give you an edge over the professionals on Wall Street through details regarding achieving financial security and meeting financial goals rooted in a firm foundation in behavioral finance, portfolio tilts, and modern portfolio theory.

Investment strategies have evolved from one generation to the next, and the ability to leverage new digital tools calls for another overhaul of traditional investment concepts. Investment techniques implemented by algorithm rather than by human monitoring can, in some cases, prove more successful. The key to a balanced portfolio is understanding what these algorithm-based strategies are, and how to best use them.

  • Explore insights from multiple Nobel Prize winning academics that can give your investment strategy an edge
  • Consider how technology can open up powerful techniques to mainstream investors, including tax-loss harvesting and automated rebalancing
  • Discuss how cost minimization and a strategic tax approach can boost your portfolio's compound growth
  • Identify strategies that support the long-term growth of your wealth

Digital Wealth: An Automatic Way to Invest Successfully is an essential text for sophisticated individual investors and investment consultants alike who want to explore how digital tools can bolster financial success.

Table of Contents

  1. Preface
    1. Note
  2. Acknowledgments
  3. Chapter 1 America’s Savings Challenge
    1. We Don’t Save Enough
    2. The Key Change in America’s Retirement Planning Process
    3. How Financial Innovation Helps
    4. The Magic of a 15 Percent Savings Rate
    5. Notes
  4. Chapter 2 The Risk of Not Investing in Stocks
    1. The Short-Term Risks
    2. The Historical Perspective
    3. The Logic
  5. Chapter 3 The Enemies of a Stock Portfolio
    1. Why Inflation Matters
    2. Treasury Inflation-Protected Securities (TIPS)
    3. Asset Confiscation
    4. Recession
  6. Chapter 4 The Value of Time for Investors
    1. Why Long-Term Stock Investing Is Less Risky than It May Seem
    2. The Long-Term Picture
    3. How Bonds Can Help
    4. Note
  7. Chapter 5 Core Assets of a Robust Portfolio
    1. Asset Classes We Include
    2. Individual Asset Classes We Exclude
    3. Notes
  8. Chapter 6 Dynamic Asset Selection: Determining the Lowest-Cost Option for Each Portfolio
  9. Chapter 7 What Software Does Better than People
    1. How Software Helps Investors
    2. Example: All the Decisions an Algorithm Makes
  10. Chapter 8 How International Investing Can Smooth Returns
    1. Demographics Matter
    2. Diversification Improves Your Industry Mix
    3. Notes
  11. Chapter 9 The Advantages of Exchange-Traded Funds
    1. The Benefits of ETFs
    2. In-Kind Transfers
    3. The Risks of ETFs
    4. Securities Lending Policies
    5. Notes
  12. Chapter 10 The Triumph of Low-Cost Investing: How Paying Less Gets You More
    1. Fooled by Randomness
    2. A Triumph of Marketing over Results
    3. Notes
  13. Chapter 11 Learning from Nobel Prize Winners
    1. Milton Friedman, 1976
    2. James Tobin, 1981
    3. Harry Markowitz, 1990
    4. William Sharpe, 1990
    5. Daniel Kahnemann, 2002
    6. Eugene Fama and Robert Shiller, 2013
  14. Chapter 12 The Costs of Being Active
    1. The Cost of Closet Indexing
    2. The Other Costs of Active Management
    3. Notes
  15. Chapter 13 The Greatest Mistakes Made by Novice Investors
    1. Starting Saving Too Late
    2. Are You Using Tax Shelters Effectively?
    3. Are You Taking Advantage of 401(k) Matching If Available?
    4. Are You Diversified Internationally?
    5. Are You Chasing Returns?
    6. Are You Overpaying in Fees?
    7. Are You Tracking the Right Index?
    8. Do You Trade Too Much?
  16. Chapter 14 Tilts and Other Ways to Help Long-Term Performance
    1. History of Market Thought
    2. Data Mining
    3. Debunking Strong-Form Market Efficiency
    4. Rationality
    5. The January Effect
    6. Sell in May and Go Away
    7. Momentum
    8. Value
    9. Small Cap
    10. Quality
    11. Longer-Term Mean Reversion
    12. Assessing Tilts in a Portfolio Context
    13. Notes
  17. Chapter 15 Establishing a Tax-Efficient Portfolio
    1. Tax Shelters
    2. Tax Efficiency for Retirement
    3. Tax Efficiency for College
    4. Tax Efficiency for Giving
    5. Tax-Efficient Asset Placement
    6. Tax Loss Harvesting
    7. Offsetting Gains with Losses
    8. The Principal of Tax Deferral
    9. How Tax Loss Harvesting Works
    10. Challenges of Implementing Tax Loss Harvesting
    11. Conclusion
  18. Chapter 16 The Value of Rebalancing and Glidepaths
    1. Rebalancing Keeps a Portfolio on Course
    2. Tiered Rebalancing
    3. Glidepaths
    4. Notes
  19. Chapter 17 How to Manage a Market Crash
    1. Keep Stock Market Investing for Longer-Term Money
    2. Making Saving an Ongoing Activity
    3. Pay Attention to Extremes of Long-Term Valuation Signals
    4. Don’t Consider Stocks in Isolation
    5. Remember that You May Underestimate Your Risk Tolerance in Good Markets
  20. Chapter 18 Your Own Worst Enemy Is in the Mirror
    1. The Biggest Threat to Your Returns Is in the Mirror
    2. Always a Reason to Avoid Staying Out
    3. The Returns You See Aren’t the Ones You Get after Tax
    4. The Media Isn’t Your Friend
    5. Overtrading
    6. Home Bias
    7. Failing to Take a Long-Term Perspective
    8. Availability Bias
    9. Chasing Performance
    10. Ignoring Fees
    11. Holding Too Much Cash
    12. How Software Can Help
    13. Note
  21. Chapter 19 Saving for Goals beyond Retirement
    1. Tax Efficiency
    2. Portfolio Construction
    3. Emergency Funds
    4. Investment Flow Chart
  22. Chapter 20 A History of Diversified Portfolio Performance
    1. Stocks vs. Bonds
    2. The Impact of Recessions
    3. The Impact of Inflation
    4. The Danger of Averages
    5. The Benefits of Combination
    6. An Emerging Market that Has Emerged
  23. Chapter 21 The Future of Wealth Management
    1. Lower Costs
    2. Democratization of Services
    3. Increasing Customer Intimacy
    4. Improved Financial Awareness
    5. Note
  24. Chapter 22 Conclusion
  25. Author's Disclaimer
  26. About the Author
  27. Index
  28. EULA