The Intelligent Portfolio: Practical Wisdom on Personal Investing from Financial Engines

by Christopher L. Jones; Foreword by: William F. Sharpe

• ISBN13: 9780470372401
• ISBN10: 0470372400
• Format: eBook
• Copyright: 2008-08-01
• Publisher: Wiley

Summary

The Intelligent Portfolio draws upon the extensive insights of Financial Engines-a leading provider of investment advisory and management services founded by Nobel Prize-winning economist William F. Sharpe-to reveal the time-tested institutional investing techniques that you can use to help improve your investment performance. Throughout these pages, Financial Engines' CIO, Christopher Jones, uses state-of-the-art simulation and optimization methods to demonstrate the often-surprising results of applying modern financial economics to personal investment decisions.

Table of Contents

Acknowledgments

Introduction to Financial Engines

Making it Personal

A Changing World

The Grand Social Experiment: 401(k)

Knowledge Gap

The Traditional Advice Model

Institutional Tools of the Trade

No Free Lunch

I'll Take the One With the Highest Return…

A Little Bit of Latin: Ex-Ante and Ex-Post

How are the Prices of Risky Assets Set?

The Link between Risk and Return

When High Risk Does Not Mean High Return

Hidden Risks and the Peso Problem

How Much Risk am I Taking?

The Risks and Returns of Different Assets

Does it Pass the Blush Test?

History is Bunk

History and Expected Returns

The Past is Not the Future

History is Sometimes Not What it Seems

Investing with Perfect Hindsight

The Lucky and the Skillful

Evaluating Fund Performance

The Wisdom of the Market

The Efficient Market?

What is the Market Portfolio?

What Does the Market Portfolio Look Like?

There's No Place Like Home

History of the Market Portfolio

Betting Against the Market

Avoiding Unintentional Bets

Risk and the Market Portfolio

The Market's View of Future Returns

Market Portfolio Simulations

Final Thoughts

Getting the Risk Right

How to Measure Risk

Asset Mix and Short-Term Loss

Risk and Portfolio Outcomes

Risk and Time Horizon

Factors to Consider in Selecting a Risk Level

Examples of Informed Investor Behavior

An Unnecessary Gamble

A Different Sort of Beast

The Risk of Individual Stocks

The Implications of Individual Stock Risk

Expected Growth Rates

The Biggest Mistake in 401(k)

What about More than One?

Do You Feel Lucky?

How to Do It Safely

Hidden Costs

Dealing with Unwanted Stock Risk

How Fees Eat Your Lunch

It's Basic Arithmetic

Big Business

For Every Winner There Has to Be a Loser

It Still Adds Up to Dollars

A Wide, Wide World

How Fees Eat Your Lunch

It's a Heavy Load to Bear

Fees and the Bigger Picture

Practical Considerations

Smart Diversification

The Goals of Diversification

The Big Picture

Why Hierarchy Is Bad for Portfolios

The Value of Asset Class Diversification

Diversification Ain't What It Used to Be

Diversification and Investment Choices

The Big Picture: Part II

The Search for Better Diversification

Picking the Good Ones

The Stuff That Matters

It's About the Future

Risk Tolerance and Fund Choice

Investment Style

Fund Expenses

Predicting Mutual Fund Performance

Rating Funds

Putting the Pieces Together

What it Takes to Rank Among the Best

Funding the Future

The Benefits of Being Flexible

Taxable and Tax-deferred Savings

How Much Do You Need?

From Wealth to Income

The Myth of Absolutes

Risk, Time, and Savings

What it Takes to Get There

Investing and Uncle Sam

Why You Don't Want to Minimize Taxes

How Taxes Impact Investment Returns

The Impact of Personal Tax Rates

Tax-Efficiency of Asset Classes

Asset Placement

Mutual Fund Tax-Efficiency

Municipal Bonds

Capital Gains and Losses

Putting It All Together

Wrapping It Up

Appendix. Getting Started with the Personal Online Advisor Service

Notes

Glossary

About the Author

Index

Table of Contents provided by Publisher. All Rights Reserved.