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Portfolio Design: A Modern Approach to Asset Allocation

Book Description

An in-depth look at the role of asset allocation in today's investment environment

In Modern Asset Allocation author Richard Marston shows you how to jump back into the market with the reminder that the key to investing is to do it for the long-run. And in looking at investing for the long-term, what matters most is asset allocation.

This reliable resource offers a fresh look at asset allocation, and discusses its importance in today's investment environment. Along the way, it examines how returns on stocks, bonds, international equities, hedge funds, real estate, commodities, and the like all increase and are of added value to a portfolio when they are strategically allocated.

  • Examines all of the major asset classes that go into modern portfolios and asks how much they add to portfolio diversification
  • Addresses the issues financial professionals face when attempting to provide diversified portfolios for their clients
  • Based on sessions that Richard Marston has developed for the CIMA program

Asset allocation is still thriving as a method to achieve long-term profitability. This book contains the insights that you need to excel at this endeavor.

Table of Contents

  1. Cover
  2. Series
  3. Title Page
  4. Copyright
  5. Dedication
  6. Preface
  7. Acknowledgments
  8. About the Author
  9. About the Book
  10. Disclaimers
  11. Chapter 1: Asset Allocation
    1. INGREDIENTS OF ASSET ALLOCATION
    2. LESSONS OF THE RECENT DOWNTURN
    3. SO ARE BONDS THE PLACE TO INVEST?
    4. SO WHAT HAPPENS WHEN THE ECONOMY TURNS Up?
    5. SOME NECESSARY TOOLS FOR ANALYSIS
    6. APPENDIX: DESCRIPTION OF THE STATISTICAL TOOLS
  12. Chapter 2: Long-Run Returns on Stocks and Bonds
    1. STOCKS AND BONDS SINCE 1951
    2. HOW MUCH MORE ATTRACTIVE ARE STOCKS THAN BONDS?
    3. REAL RETURNS
    4. RECONSIDERING BOND RETURNS
    5. RECONSIDERING STOCK RETURNS
    6. ALTERNATIVE ESTIMATES OF LONG-RUN STOCK RETURNS
    7. UPPER AND LOWER BOUNDS FOR EQUITY RETURNS
    8. APPENDIX: ALTERNATIVE ESTIMATES OF STOCK RETURNS
  13. Chapter 3: Small-Cap Stocks
    1. WHAT DO WE MEAN BY SMALL-CAP STOCKS?
    2. RELATIVE PERFORMANCE OF LARGE-CAP AND SMALL-CAP STOCKS—RUSSELL SERIES
    3. RELATIVE PERFORMANCE OF LARGE-CAP AND SMALL-CAP STOCKS—SBBI SERIES
    4. RELATIVE PERFORMANCE OF LARGE-CAP AND SMALL-CAP STOCKS—BROADER ANALYSIS
    5. LARGE-CAP AND SMALL-CAP STOCKS IN A PORTFOLIO CONTEXT
    6. SUMMARY—KEY FEATURES OF SMALL-CAP STOCKS
  14. Chapter 4: Value and Growth Investing
    1. DESCRIPTION OF THE RUSSELL 1000 INDEXES
    2. RELATIVE PERFORMANCE OF GROWTH AND VALUE INDEXES
    3. VALUE AND GROWTH INDEXES FOR EARLIER PERIODS
    4. RELATIVE PERFORMANCE OF SMALL-CAP GROWTH AND VALUE STOCKS
    5. PORTFOLIOS WITH GROWTH AND VALUE
    6. SUMMARY—KEY FEATURES OF GROWTH AND VALUE STOCKS
  15. Chapter 5: Foreign Stocks
    1. RETURNS ON FOREIGN AND U.S. STOCKS
    2. CURRENCY CAPITAL GAINS AND FOREIGN STOCK RETURNS
    3. DIVERSIFICATION BENEFITS OF FOREIGN STOCK INVESTING
    4. ARE THERE SHORTCUTS TO OWNING FOREIGN STOCKS?
    5. SUMMARY—KEY FEATURES OF FOREIGN STOCKS
  16. Chapter 6: Emerging Markets
    1. WHAT IS AN EMERGING MARKET?
    2. EMERGING STOCK MARKET INDEXES
    3. EMERGING STOCK MARKET RETURNS
    4. RISKS OF INVESTING IN EMERGING STOCK MARKETS
    5. EMERGING MARKET BONDS—A BRIEF HISTORY
    6. RETURNS ON EMERGING MARKET BONDS
    7. SUMMARY—KEY FEATURES OF EMERGING MARKET STOCKS AND BONDS
  17. Chapter 7: Bonds
    1. TREASURY BONDS
    2. THE WIDER U.S. BOND MARKET
    3. RETURNS ON U.S. BONDS
    4. BOND MARKETS OUTSIDE THE UNITED STATES
    5. SUMMARY—KEY FEATURES OF BONDS
  18. Chapter 8: Strategic Asset Allocation
    1. EXPANDING THE PORTFOLIO TO INCLUDE OTHER BONDS AND STOCKS
    2. EXPANDING THE PORTFOLIO TO INCLUDE FOREIGN STOCKS
    3. THE DIRTY SECRET OF OPTIMIZATION
    4. ALTERNATIVE APPROACHES TO OPTIMIZATION
    5. ESTIMATING PORTFOLIO RETURNS—THE PREMIUM METHOD
    6. PORTFOLIOS IN PRACTICE—EXAMPLE OF MARKETWATCH.COM'S LAZY PORTFOLIOS
    7. BEYOND THE TRADITIONAL EFFICIENT FRONTIER
  19. Chapter 9: Hedge Funds
    1. INVESTMENT STRATEGIES
    2. HEDGE FUND RETURNS
    3. HEDGE FUND BIASES
    4. PERFORMANCE ACROSS MANAGERS
    5. FUND OF FUNDS
    6. HEDGE FUNDS IN A PORTFOLIO
    7. SUMMARY—KEY FEATURES OF HEDGE FUNDS
  20. Chapter 10: Venture Capital and Private Equity
    1. COMMON FEATURES OF VENTURE CAPITAL AND BUYOUT FUNDS
    2. VENTURE CAPITAL
    3. RETURNS ON VENTURE CAPITAL
    4. BUYOUT FUNDS
    5. RETURNS ON BUYOUT FUNDS
    6. KEY FEATURES OF PRIVATE EQUITY
  21. Chapter 11: Real Assets—Real Estate
    1. REAL ESTATE INVESTMENT TRUSTS
    2. DIRECT OWNERSHIP OF REAL ESTATE
    3. HOME OWNERSHIP
    4. CONCLUDING REMARKS
  22. Chapter 12: Real Assets—Commodities
    1. SOURCES OF RETURN ON COMMODITY FUTURES
    2. RETURNS ON COMMODITY FUTURES
    3. PERFORMANCE IN A PORTFOLIO
    4. DOES GOLD BELONG IN THE PORTFOLIO?
    5. ACTIVE INVESTMENT IN COMMODITIES—MANAGED FUTURES
    6. SUMMARY—KEY FEATURES OF COMMODITY INVESTMENTS
  23. Chapter 13: Asset Allocation with Alternative Investments
    1. DIVERSIFYING INTO REAL ESTATE—ALTERNATIVES FOR ORDINARY INVESTORS
    2. EXPANDING THE MENU OF ALTERNATIVE ASSETS
    3. HIGH NET WORTH (HNW) PORTFOLIOS
    4. ULTRA HNW PORTFOLIOS
    5. LESSONS ABOUT ALTERNATIVES FROM THE YALE ENDOWMENT
    6. LESSONS ABOUT ALTERNATIVE INVESTMENTS LEARNED IN THE FINANCIAL CRISIS
    7. VERDICT ON ALTERNATIVE INVESTMENTS
  24. Chapter 14: Investing and Spending by Foundations
    1. SPENDING RULES
    2. ESTIMATING FUTURE BOND AND STOCK RETURNS
    3. VOLATILITY AND UNCERTAINTY
    4. PORTFOLIOS OF STOCKS AND BONDS
    5. DESCRIPTION OF THE SPENDING PLAN
    6. USING HISTORICAL RETURNS SINCE 1951 TO SET SPENDING RULES
    7. EFFECT OF LOWER STOCK RETURNS ON SPENDING RULES
    8. EFFECTS OF DIFFERENT STOCK/BOND ALLOCATIONS
    9. CONCLUDING COMMENTS
  25. Chapter 15: Investing and Spending in Retirement
    1. LONGEVITY
    2. SPENDING RULES FOR RETIREMENT
    3. PORTFOLIOS OF STOCKS AND BONDS
    4. BASELINE CASE: CAN TWO LIVE MORE CHEAPLY THAN ONE?
    5. EFFECTS OF BEQUESTS AND VARIABLE SPENDING RULES
    6. HOW CAN I TURN A DEFINED CONTRIBUTION PLAN INTO A DEFINED BENEFIT PLAN?
    7. CONCLUDING COMMENTS—POSTPONE RETIREMENT?
  26. Chapter 16: The Discipline of Asset Allocation—Rebalancing
    1. REBALANCING DEFINED
    2. REBALANCING WHEN TIMES ARE GOOD
    3. REBALANCING WHEN TIMES ARE BAD
  27. References
  28. Index