Preface
It is my belief that portfolio design---choosing the right mix of assets appropriate to a particular investor---is the key to successful investing. Choosing managers for individual asset classes is certainly important, but it’s care in designing the asset allocation that can make or break a portfolio. Such care cannot protect an investor from losses in an economic downturn, but it can cushion the blow. Careful portfolio design will never make an investor rich, but it will help that investor accumulate wealth systematically.
It’s possible to grow wealth much faster by investing in individual assets. After all, that’s how family fortunes are made. Entrepreneurs bet everything on a single idea and, in at least a fraction of cases, the entrepreneur becomes wealthy enough to worry about how to invest that wealth more broadly. But most investors are not trying to make fortunes from their investments. They are trying to generate higher wealth, no doubt, but they are also trying to keep risks under control. That’s true whether the investor is a foundation trying to carry out its mission or a family trying to accumulate enough wealth for retirement.
Since the early 1970s when pension law became better established under ERISA, investment advisors have become more sophisticated about their approaches to investing. Gone are the days when most advisors did their own stock selection. Investment managers are hired to do that. Advisors today worry about how to balance risk against return ...
