Asset Allocation Quotes

Capital is a lot like people; it needs to be employed.

At Mayflower-Plymouth, we approach Asset Management from a network and systems perspective as opposed to from just an entity perspective. We learn from nature and we look at how the mycorrhiza network is a manager of Capital and an allocator of Capital, both a means and a method - and we try to operate in the same way.

Asset allocation, where to park your money and how to divide it up, is the single most important skill of a successful investor.

All stakeholders should benefit from the capital we allocate in our portfolio, on a net value add basis.

No group can survive, let alone thrive, unless what is good for the overall community is more important than individual freedom. Take, for example, resource allocation. How can anyone with any intelligence possibly justify, in terms of the overall community, the accumulation and hoarding of enormous material assets by a few individuals when others do not even have food, clothing, and other essentials?” In

In fact, wealth-maximizing individuals compare the after-tax costs of debt with the after-tax returns from bonds, liquidating bond positions to pay off loans when the costs of debt exceed the returns from bonds. Rational investors consider liability positions when making asset allocations.

The problem with long-term investing is the short term.

From an asset-allocation perspective, when we talk about diversification, we're talking about investing in multiple asset classes. There are six that I think are really important and they are US stocks, US Treasury bonds, US Treasure inflation-protected securities [TIPS], foreign developed equities, foreign emerging-market equities and real estate investment trusts [REITS]. p473

big forces to worry about: growth and inflation. Each could either be rising or falling, so I saw that by finding four different investment strategies—each one of which would do well in a particular environment (rising growth with rising inflation, rising growth with falling inflation, and so on)—I could construct an asset-allocation mix that was balanced to do well over time while being protected against unacceptable losses. Since that strategy would never change, practically anyone could implement it.

My Future Self My future self and I become closer and closer as time goes by. I must admit that I neglected and ignored her until she punched me in the gut, grabbed me by the hair and turned my butt around to introduce herself. Well, at least that’s what it felt like every time I left the convalescent hospital after doing skills training for a certification I needed to help me start my residential care business. I was going to be providing specialized, 24/7 residential care and supervising direct care staff for non-verbal, non-ambulatory adult men in diapers! I ran to the Red Cross and took the certified nurse assistant class so I would at least know something about the job I would soon be hiring people to do and to make sure my clients received the best care. The training facility was a Medicaid hospital. I would drive home in tears after seeing what happens when people are not able to afford long-term medical care and the government has to provide that care. But it was seeing all the “young” patients that brought me to tears. And I had thought that only the elderly lived like this in convalescent hospitals…. I am fortunate to have good health but this experience showed me that there is the unexpected. So I drove home each day in tears, promising God out loud, over and over again, that I would take care of my health and take care of my finances. That is how I met my future self. She was like, don’t let this be us girlfriend and stop crying! But, according to studies, we humans have a hard time empathizing with our future selves. Could you even imagine your 30 or 40 year old self when you were in elementary or even high school? It’s like picturing a stranger. This difficulty explains why some people tend to favor short-term or immediate gratification over long-term planning and savings. Take time to picture the life you want to live in 5 years, 10 years, and 40 years, and create an emotional connection to your future self. Visualize the things you enjoy doing now, and think of retirement saving and planning as a way to continue doing those things and even more. However, research shows that people who interacted with their future selves were more willing to improve savings. Just hit me over the head, why don’t you! I do understand that some people can’t even pay attention or aren’t even interested in putting money away for their financial future because they have so much going on and so little to work with that they feel like they can’t even listen to or have a conversation about money. But there are things you’re doing that are not helping your financial position and could be trouble. You could be moving in the wrong direction. The goal is to get out of debt, increase your collateral capacity, use your own money in the most efficient manner and make financial decisions that will move you forward instead of backwards. Also make sure you are getting answers specific to your financial situation instead of blindly guessing! Contact us. We will be happy to help!

Smart Sexy Money is About Your Money As an accomplished entrepreneur with a history that spans more than fourteen years, Annette Wise is constantly looking for ways to give back to her community. Using enterprising efforts, she qualified for $125,000 in startup funding to develop a specialized residential facility that allows developmentally disabled adults to live in the community after almost a lifetime of living in a state institution. In doing so, she has provided steady employment in her community for the last thirteen years. After dedicating years to her residential facility, Annette began to see clearly the difficulty business owners face in planning for retirement successfully. Searching high and low to find answers, she took control of financial uncertainty and in less than 2 years, she became a Full Life Agent, licensed Registered Representative, Investment Advisor Representative and Limited Principal. Her focus is on building an extensive list of clients that depend on her for smart retirement guidance, thorough college planning, detailed business continuation, and business exit strategies. Clients have come to rely on Annette for insight on tax advantaged savings and retirement options. Annette’s primary goal is to help her clients understand more than just concepts, but to easily understand how money works, the consequences of their decisions and how they work in conjunction with their desires and goal. Ever the curious soul who is always up for a challenge, Annette is routinely resourceful at finding sensible means to a sometimes-challenging end. She believes in infinite possibilities as well as in sharing her knowledge with others. She is the go-to source for “Smart Wealth Solutions.” Among Annette’s proudest accomplishments are her two wonderful sons, Michael III and Matthew. As a single mom, they have been her inspiration and joy. She is forever grateful to the greatest brothers in the world- Andrew and Anthony Wise, for assistance in grooming them into amazing young men.

Collateral Capacity or Net Worth? If young Bill Gates had knocked on your door asking you to invest $10,000 in his new company, Microsoft, could you get your hands on the money? Collateral capacity is access to capital. Your net worth is irrelevant if you can’t access any of the money. Collateral capacity is my favorite wealth concept. It’s almost like having a Golden Goose! Collateral can help a borrower secure loans. It gives the lender the assurance that if the borrower defaults on the loan, the lender can repossess the collateral. For example, car loans are secured by cars, and mortgages are secured by homes. Your collateral capacity helps you to avoid or minimize unnecessary wealth transfers where possible, and accumulate an increasing pool of capital providing accessibility, control and uninterrupted compounding. It is the amount of money that you can access through collateralizing a loan against your money, allowing your money to continue earning interest and working for you. It’s very important to understand that accessibility, control and uninterrupted compounding are the key components of collateral capacity. It’s one thing to look good on paper, but when times get tough, assets that you can’t touch or can’t convert easily to cash, will do you little good. Three things affect your collateral capacity: ① The first is contributions into savings and investment accounts that you can access. It would be wise to keep feeding your Golden Goose. Often the lure of higher return potential also brings with it lack of liquidity. Make sure you maintain a good balance between long-term accounts and accounts that provide immediate liquidity and access. ② Second is the growth on the money from interest earned on the money you have in your account. Some assets earn compound interest and grow every year. Others either appreciate or depreciate. Some accounts could be worth a great deal but you have to sell or close them to access the money. That would be like killing your Golden Goose. Having access to money to make it through downtimes is an important factor in sustaining long-term growth. ③ Third is the reduction of any liens you may have against these accounts. As you pay off liens against your collateral positions, your collateral capacity will increase allowing you to access more capital in the future. The goose never quit laying golden eggs – uninterrupted compounding. Years ago, shortly after starting my first business, I laughed at a banker that told me I needed at least $25,000 in my business account in order to borrow $10,000. My business owner friends thought that was ridiculously funny too. We didn’t understand collateral capacity and quite a few other things about money.

William J. Bernstein and Robert D. Arnott, “Earnings Growth: The Two Percent Dilution,” Financial Analysts Journal 59:5 (September/October, 2003): 47–55.

Trying to consistently pick investments that are going to beat their benchmarks is like trying to win a marathon wearing muddy boots. There is a lot of drag, and your odds of winning are very low. The high costs associated with attempting to beat the market will almost guarantee sluggish results.

The problem with long-term investing is the short term. Nothing destroys a good long-term plan like extreme short-term volatility. That throws people off track, and they often do things that are emotional rather than rational.

If your are an expatriate, a 'will' is required because, the laws of the country in which you reside would be different from that of your home country, and when the inevitable (death) occurs (untimely), your property /possessions may be exposed to the discretion of the state laws for the allocation of your property to someone, you may have never wished that they possess your property and be an heir to your assets.

Don’t try to out-guess the markets because you will not be successful in the long term, and it will cost you dearly. Control what you can control: costs, taxes, risk. Then let the markets take care of the rest. This approach has the highest probability of financial success.

Asset allocation, where to park your money and how to divide it up, is the single most important skill of a successful investor. And as we will learn from the masters, it’s not that complicated! Low-cost TDFs might be great for the average investor, but you are not average if you are reading this book!

The government owns, either directly or indirectly, almost all of China’s land and roughly two-thirds of its productive assets, enabling it to quickly allocate resources on an enormous scale.

The Prussian General Karl von Clausewitz once said, “The greatest enemy of a good plan is the dream of a perfect plan.

Choosing your portfolio's overall asset allocation is the most important investment decision you will make.

Time is money to successful salespeople. They want to spend their time selling. Waste their time and you reduce their earning capacity, their morale, and the company’s top and bottom line. Allocating corporate resources to inefficient processes or events will waste sales time, corporate assets, and send the wrong messages to the sales force.

Do you have the fortitude and discipline to stick with your predetermined investment strategy (asset allocation) when the going gets rough?” Successful investment management depends to a large degree on the ability of an individual to withstand the periods of stress and on his/her ability to overcome the severe emotional hurdles present during bear markets like the ones experienced in 1973–74 and 2000–02. In

This book does not agree with this view. It cannot be assumed that efficient asset allocation will result if investment decisions are made by the investing equivalent of kelp and plankton of the marine food chain—uneducated passive reactors whose goal in investing is to outperform a market consistently.

STP is the best way to systematically change the asset allocation. STP

Have clear objectives, understand your risk profile and return requirements, allocate your investments in asset classes (equity,

In this post I am going to take a look at what an investor can do to improve a hedge fund investment through the use of dynamic capital allocation. For the purposes of illustration I am going to use Cantab Capital’s Aristarchus program – a quantitative fund which has grown to over $3.5Bn in assets under management since its opening with $30M in 2007 by co-founders Dr. Ewan Kirk and Erich Schlaikjer.

There are three crucial things which must be monitored regularly. In order of importance, they are 1) investment returns relative to your financial plan requirements, 2) your asset allocation, and 3) the quality of your investments. But just how often should you review those things? The answer is, “It depends.

Choose your asset allocation, pick good assets, and keep your account on autopilot going forward.

The category of small-cap value represents approximately 3 percent of the capitalization of the broad U.S. market.

Investors who followed a broadly diversified asset allocation that included a total market fund and a small value index fund would have faired very well during the past decade.

The point on Figure 6-8 that is most interesting is a portfolio representing 70 percent in the broad market and 30 percent in the small value index. Over a 30-year period, a mix of 70 percent in the total market and 30 percent in the small-cap value index would have increased U.S. equity returns by 2.0 percent with very little increase in observed portfolio risk. Figure

Mixing a broad index fund with small-cap value has produced the best results. U.S. equities are a core position in almost every growth investor’s portfolio.

The broad U.S. market returned 10.9 percent annually from 1950 to 2009. That handily beat the 6.1 percent return on five-year Treasury notes and the 3.8 percent level of inflation. Table 6-1 shows the inflation-adjusted returns over different periods of time. Inflation-adjusted returns are also known as real returns because that is the amount of purchasing power investors gained or lost. The real return does not include taxes. Real returns reinforce the fact that inflation is an invisible tax on all investments. The portion of return that is related to inflation cannot be counted as investment gain. When creating an asset allocation for your portfolio, you should always consider the expected real return of the investments you are considering. TABLE

Stock investors should expect periods of time when equities do not make money after inflation. It is the nature of investment risk. This is also why time in the market is critical to stock investors. In the long run, equities have outpaced inflation by a wide margin, and they are expected to remain one of the best real return investments in the future. You have to stay invested during all market conditions to benefit from the gains. U.S.

No liquid investment alternatives with stable guaranteed principal values exist that can provide real returns by consistently beating the combined impact of inflation and income taxes.

The 2012 Ibbotson® Stocks, Bonds, Bills, and Inflation® Classic Yearbook, published by Morningstar, Inc., is one of the best sources of up-to-date information regarding the performance of various U.S. capital market investment alternatives. The data cover the period from 1926 to the present.

But the current investment banking model—whether applied in a standalone institution such as Goldman or in a broad financial conglomerate such as Deutsche Bank—is at the heart of the problems the finance sector poses for the real economy. Investment banks today engage in securities issuance, corporate advice and asset management; they make markets in equities and FICC, and trade in these markets on their own account. It is only necessary to list these functions to see that each of these activities conflicts with all the others. Each should be undertaken in distinct institutions. And with lower volumes of inter-bank trading, a diminished role for public equity markets and much more direct investment by asset managers the scale of most of these activities should be much reduced. Among all the actors in the finance sector today, only the asset manager, who typically earns a fee calculated as a percentage of funds under management, is rewarded for idleness. The profits of a segregated deposit-taking bank would similarly depend primarily on the scale of the deposit base, and secondarily on its success in making good loans. Dedicated channels of capital allocation have a more appropriate incentive structure than activities focused on trading and transactions. Whenever

I hope that almost every adult will become an investor. When I became an investment counselor there were only 4 million shareholders in America, and now there are 48 million. The amount of money invested in American mutual funds is now 1,000 times as great as it was 55 years ago. Thrift, common sense, and wise asset allocation can produce excellent results in the long run. For example, if you begin at age 25 to invest $2,000 annually into your Individual Retirement Account where it can compound free of tax, and if you average a total return of 10 percent annually, you will have nearly a million dollars accumulated at age 65.

Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep in reserve. —Talmud (c. 1200 BC–AD 500)

Ants aren’t smart,” Gordon says. “Ant colonies are.” A colony can solve problems unthinkable for individual ants, such as finding the shortest path to the best food source, allocating workers to different tasks, or defending a territory from neighbors. As individuals, ants might be tiny dummies, but as colonies they respond quickly and effectively to their environment. …

You’ll learn more about this in chapter 4.1 on asset allocation, but for now, just know that if real estate’s mantra is “Location! Location! Location!” then the mantra for getting better returns while reducing risk is “Diversification! Diversification! Diversification!” Effective diversification not only reduces your risk but also offers you the opportunity to maximize your returns.

20 In 1932, Adolf A. Berle and Gardiner C. Means, lawyer and economics professor, respectively, published The Modern Corporation and Private Property, a highly influential study revealing that top executives of America’s giant companies were not even accountable to their own shareholders but operated the companies “in their own interest, and…divert[ed] a portion of the asset fund to their own uses.”21 The only solution, concluded Berle and Means, was to enlarge the power of all groups within the nation who were affected by the large corporation, including employees and consumers. They envisioned the corporate executive of the future as a professional administrator, dispassionately weighing the claims of investors, employees, consumers, and citizens, and allocating benefits accordingly. “[I]t seems almost essential if the corporate system is to survive—that the ‘control’ of the great corporations should develop into a purely neutral technocracy, balancing a variety of claims by various groups in the community and assigning each a portion of the income stream on the basis of public policy rather than private cupidity.

The global financial crisis was caused by excesses of the liberal system of regulations and the belief that a completely free market will allow enormous innovation and allocate capital to the most profitable enterprises with the highest returns. Once the Federal Reserve Chairman decided it was not necessary to regulate derivatives and supervise them, the fuse was lit. Once you find that you can mash up a lot of good and bad assets in one bundle and pass on your risk all around Europe and other parts of the world, you have started something like a Ponzi scheme which must come to an end sometime…The business of a person in a financial institution is to make the biggest profit for himself, so just condemning the bankers and the profit takers does not make sense. You have allowed these rules, and they work within these rules.

Fidelity to asset-allocation targets requires regular purchase of the out-of-favor and sale of the in-favor, demanding that investors exhibit out-of-the-mainstream, contrarian behavior.

First, he said, we need 30% in stocks (for instance, the S&P 500 or other indexes for further diversification in this basket). Initially that sounded low to me, but remember, stocks are three times more risky than bonds. And who am I to second-guess the Yoda of asset allocation!? “Then you need long-term government bonds. Fifteen percent in intermediate term [seven- to ten-year Treasuries] and forty percent in long-term bonds [20- to 25-year Treasuries].” “Why such a large percentage?” I asked. “Because this counters the volatility of the stocks.” I remembered quickly it’s about balancing risk, not the dollar amounts. And by going out to longer-term (duration) bonds, this allocation will bring a potential for higher returns. He rounded out the portfolio with 7.5% in gold and 7.5% in commodities. “You need to have a piece of that portfolio that will do well with accelerated inflation, so you would want a percentage in gold and commodities. These have high volatility. Because there are environments where rapid inflation can hurt both stocks and bonds.” Lastly, the portfolio must be rebalanced. Meaning, when one segment does well, you must sell a portion and reallocate back to the original allocation. This should be done at least annually, and, if done properly, it can actually increase the tax efficiency. This is part of the reason why I recommend having a fiduciary implement and manage this crucial, ongoing process.

For most investors, allocating at least 10% of your retirement assets to TIPS is an intelligent way to keep a portion of your money absolutely safe—and entirely beyond the reach of the long, invisible claws of inflation.

A Good Start in Financial History You really can’t learn enough financial history. The following, listed in descending order of importance, are landmarks in the field. Edward Chancellor. Devil Take the Hindmost. New York: Farrar, Straus, and Giroux, 1999. What manias look like; how to recognize—and hopefully avoid—irrational exuberance. Benjamin Roth. The Great Depression: A Diary. New York: PublicAffairs, 2009. What the bottoms look like; how to keep your courage and your cash up. Roger G. Ibbotson and Gary P. Brinson. Global Investing. New York: McGraw-Hill, 1993. Five hundred years of hard and fiat money, inflation, and security returns in a small, easy-to-read package. Adam Fergusson. When Money Dies. New York: PublicAffairs, 2010; Frederick Taylor. The Downfall of Money. New York: Bloomsbury Press, 2013. What real inflation looks like. Be afraid, very afraid. Benjamin Graham. Security Analysis. New York: McGraw-Hill, 1996. You’re not a pro until you’ve read Graham “in the original”—the first edition, published in 1934. An authentic copy in decent condition will run you at least a grand. Fortunately, McGraw-Hill brought out a facsimile reprint in 1996. Charles Mackay. Extraordinary Popular Delusions and the Madness of Crowds. Petersfield, U.K.: Harriman House Ltd., 2003. If you were smitten with Devil Take the Hindmost, you’ll love this nineteenth-century look at earlier manias. Sydney Homer and Richard Sylla. A History of Interest Rates, 4th ed. Hoboken, NJ: John Wiley & Sons, 2005. Loan markets from 35th-century B.C. Sumer to the present.

When playing a bear market, the same rules hold: You want to diversify your risks, especially knowing that collapses move even faster than rallies. You need to decide how much safe cash or near cash you want to hold to sleep at night and to handle financial emergencies, like the loss of your job or your house. Then decide how much to put into longer-term high-quality bonds, like those 30-year Treasuries and AAA corporates, but I think it’s still premature to make this move at the time of this writing, in August 2017. Then decide how much you want to put into a dollar bull fund or the ETF UUP, which tracks the U.S. dollar versus its six major trading partners. If you’re willing to risk part of your wealth, you can also bet on financial assets going down—from stocks to gold. Stocks are the one type of financial asset that goes down in either a deflationary crisis, like the 1930s, or an inflationary one, like the 1970s. So shorting stocks is the best way to prosper in the downturn, either way. But don’t leverage this bet. The markets are simply too volatile. You can short the stock market with no leverage by simply buying an ETF (exchange-traded fund) like the ProShares Short S&P 500 (NYSEArca: SH). It’s an inverse fund on the S&P 500, so if the index goes down 50 percent, you make 50 percent. The ProShares Ultrashort (NYSEArca: QID) is double short the NASDAQ 100, which is likely to get hit the worst. If you make this play, just do a half share, to avoid that two-times leverage (hold the other half in cash or short-term bonds). Direxion Daily Small Cap Bear 3X ETF (NYSEArca: TZA) is triple short the Russell 2000, which is also likely to lead on the way down. So buy only a one-third share of this one, to remain without leverage. (That means the money you allocate here should be one-third in TZA and two-thirds in cash, to offset the leverage.) And unlike the gold bugs, I see gold collapsing. It’s an inflation hedge, not a deflation hedge. If gold rallies back as high as $1,425—on my predicted bear-market rally—then it could easily drop to around $700 within a year. Your last decision is whether to risk some of your funds betting on gold’s downside, for the greatest potential returns. You can buy DB Gold Double Short ETN (NYSEArca: DZZ)—double short gold—at a half share, to offset the leverage, or just simply short GLD, the ETF that follows gold. There you have it. How to handle the coming crash.

Unconventional Success: A Fundamental Approach to Personal Investment recommends that investors engage not-for-profit fund management companies to create broadly diversified, passively managed portfolios. Note that most mutual-fund assets rest under the control of for-profit management companies. Not-for-profits represent a contrarian alternative. Note that most individuals’ portfolios contain result-dominating allocations to domestic marketable securities. True diversification represents a contrarian alternative. Note that most mutual funds attempt to beat the market. Market-mimicking strategies represent a contrarian alternative.

Poor asset allocation, ill-considered active management, and perverse market timing lead the list of errors made by individual investors.

Another appropriate policy response limits investment alternatives to a well-structured set of choices. Government-provided tax advantages encourage individual participation in defined contribution programs. Suppose the government were to award tax benefits only to accounts that invest in low-cost, market-mimicking funds. By restricting tax-advantaged investments to passive vehicles, investors face far fewer opportunities to make investment mistakes. Government regulation might address market-timing issues by limiting the number and frequency of moves between funds. Educational efforts might deal with the challenges of asset allocation, encouraging individuals to adopt investment programs that fit their specific risk profiles and time horizons. Acting in loco parentis, the government could create powerful incentives to adopt passively managed, appropriately allocated investment programs

Capital markets provide three tools for investors to employ in generating investment returns: asset allocation, market timing, and security selection.

Establishing a coherent investment program begins with understanding the relative importance of asset allocation, market timing, and security selection.

Market timing refers to deviations from the long-term asset-allocation targets. Active market timing represents a purposeful attempt to generate short-term, superior returns based on insights regarding relative asset class valuations. For example, an investor who believes that stocks represent good value and bonds represent poor value might temporarily move the domestic stock allocation from 30 percent to 35 percent of assets, while reducing the bond allocation from 15 percent to 10 percent of assets.

Three basic investment principles inform asset-allocation decisions in well-constructed portfolios. First, long-term investors build portfolios with a pronounced equity bias. Second, careful investors fashion portfolios with substantial diversification. Third, sensible investors create portfolios with concern for tax considerations. The principles of equity orientation, diversification, and tax sensitivity find support both in common sense and academic theory.

The wealth-creating equity bias, the risk-reducing portfolio diversification, and the return-enhancing tax sensitivity combine to undergird the asset-allocation structure of effective investment portfolios.

If an investor pursued an exclusive strategy of day trading stock index futures, investment results for the portfolio would have nothing to do with asset allocation or security selection and everything to do with market timing. The lack of widespread frenetic trading by investors stems either from a general sensibility of the investing populace or from a Darwinian winnowing of the day traders’ ranks.

Overweighting assets that produced strong past performance and underweighting assets that produced weak past performance provides a poor recipe for pleasing prospective results. Strong evidence exists that markets exhibit mean-reverting behavior, a tendency for good performance to follow bad and bad performance to follow good. In markets characterized by mean reversion, investors who fail to rebalance portfolios to long-term targets end up with outsized exposure to recently appreciated assets that prove most vulnerable to poor future results. Only by regularly rebalancing portfolios to long-term targets do investors realize the results that correspond to the policy asset-allocation decision.

Investors generally fail to follow the most basic investment precepts. Instead of concentrating on the central issue of creating sensible long-term asset-allocation targets, investors too frequently focus on the unproductive diversions of security selection and market timing. Instead of constructing equity-oriented, well diversified, tax-sensitive portfolios, investors too frequently choose to mimic the conventional, poorly structured consensus

Create a simple, diversified asset allocation plan. Invest a part of each paycheck in low-cost, no-load index funds according to your plan. Check your investments periodically, rebalance when necessary, then stay the course.

How Do We Know If We Need to Rebalance? We need to know several things in order to determine if our portfolio needs to be rebalanced. First, we need to know our desired asset allocation. This was determined when we first established our asset allocation plan, and possibly revised and refined it later as life cycles and events made changes to our plan necessary.

A second method of rebalancing involves the creation of expansion bands. With this method of rebalancing, you create a window, such as plus or minus 5 percent from your desired allocation. You would rebalance whenever the asset class exceeds those bands. For example, if our desired equity allocation was 60 percent, we’d only need to rebalance whenever the equities in our portfolio fell below 55 percent or rose above 65 percent. However, if you plan to use the expansion band method and intend to rebalance as soon as your allocation touches either band, this would require more frequent monitoring of one’s portfolio than the predetermined time-interval method, especially in a volatile market. In addition, if strict expansion band rebalancing were to be done in a taxable account, it could create short-term capital gains which are taxed at a higher rate than long-term capital gains. Therefore, you may want to consider delaying your rebalancing until you have held the asset for more than 12 months.

if you consistently practice the techniques recommended in this book, you will automatically side-step most of the emotional investment traps. Pay off your credit card and high-interest debts and stay out of debt. Formulate a simple, sound, asset allocation plan and stick to it. Systematically save and invest a part of each paycheck in accordance with the asset allocation plan. The earlier you start, the richer you become. Invest most or all of your money in index funds. Keep your costs of investing and taxes low. Don’t try to time the market. Tune out the noise, rebalance your portfolio when necessary, and stick with your plan. By doing those things, you will intelligently manage risk. You will buy low, sell high, and have the power of compounding working in your favor. You will slowly but systematically build wealth and a nest egg for a comfortable retirement. With a little luck, you will have more money than you dreamed you would ever have. These time-tested techniques have worked for millions of other people and they can work for you, too.

Rebalancing involves taking action to ensure that the current portfolio characteristics match as closely as is practicable the targeted portfolio allocations. As market forces cause various assets to rise or fall in value, proportions of portfolios allocated to the various assets rise and fall concurrently. To maintain desired allocations, investors sell assets that appreciate in relative terms and buy assets that depreciate in relative terms. Unless investors engage in systematic rebalancing of portfolios, the risk and return profile of the actual portfolio invariably differs from the risk and return profile of the desired portfolio.

We all know that asset allocation is the most important part of our success,

The first is asset allocation: What assets are you going to hold in your portfolio? And in which proportions are you going to hold them? The second is market timing. Are you going to try to bet on whether one asset class is going to perform better in the short run relative to the other asset classes you hold?

The overwhelmingly most important [as you figured out] is asset allocation.

In divorce the contract between wife and husband is being broken and the courts may need to mediate the division of assets, but children are not assets and the state can not interfere by allocating the children without a high standard of proof that one parent is unfit. Therefore

A Quantitative Approach to Tactical Asset Allocation.”)

The economist Harry Markowitz won the 1990 Nobel Prize in Economics for developing modern portfolio theory: his groundbreaking “mean-variance portfolio optimization” showed how an investor could make an optimal allocation among various funds and assets to maximize returns at a given level of risk. So when it came time to invest his own retirement savings, it seems like Markowitz should have been the one person perfectly equipped for the job. What did he decide to do? I should have computed the historical covariances of the asset classes and drawn an efficient frontier. Instead, I visualized my grief if the stock market went way up and I wasn’t in it—or if it went way down and I was completely in it. My intention was to minimize my future regret. So I split my contributions fifty-fifty between bonds and equities. Why

There's a saying on Wall Street that certain investments are sold, not bought, in that they require a salesman to push them on a willing investor rather than the buyer actively seeking them out. This would certainly apply to non-traded REITS. Because the first question any investor, or for that matter well-intentioned advisor, should ask before considering non-traded REITs is how the sector is likely to perform going forward. Asset allocation, the choice of how much an investor should put in stocks, investment grade bonds, REITs, high-yield bonds, commodities, or any other asset class generally drives 80% to 90% of the investor's overall return.

Asset allocation, 2. Diversification, 3. Tax efficiency.

PRINCIPLE: LEADING UP THE CHAIN If your boss isn’t making a decision in a timely manner or providing necessary support for you and your team, don’t blame the boss. First, blame yourself. Examine what you can do to better convey the critical information for decisions to be made and support allocated. Leading up the chain of command requires tactful engagement with the immediate boss (or in military terms, higher headquarters) to obtain the decisions and support necessary to enable your team to accomplish its mission and ultimately win. To do this, a leader must push situational awareness up the chain of command. Leading up the chain takes much more savvy and skill than leading down the chain. Leading up, the leader cannot fall back on his or her positional authority. Instead, the subordinate leader must use influence, experience, knowledge, communication, and maintain the highest professionalism. While pushing to make your superior understand what you need, you must also realize that your boss must allocate limited assets and make decisions with the bigger picture in mind. You and your team may not represent the priority effort at that particular time. Or perhaps the senior leadership has chosen a different direction. Have the humility to understand and accept this. One of the most important jobs of any leader is to support your own boss—your immediate leadership. In any chain of command, the leadership must always present a united front to the troops. A public display of discontent or disagreement with the chain of command undermines the authority of leaders at all levels. This is catastrophic to the performance of any organization. As a leader, if you don’t understand why decisions are being made, requests denied, or support allocated elsewhere, you must ask those questions up the chain. Then, once understood, you can pass that understanding down to your team. Leaders in any chain of command will not always agree. But at the end of the day, once the debate on a particular course of action is over and the boss has made a decision—even if that decision is one you argued against—you must execute the plan as if it were your own. When leading up the chain of command, use caution and respect. But remember, if your leader is not giving the support you need, don’t blame him or her. Instead, reexamine what you can do to better clarify, educate, influence, or convince that person to give you what you need in order to win. The major factors to be aware of when leading up and down the chain of command are these:

Though part of the puzzle is obviously capital budget allocations, most companies seem to have a much higher awareness of the rules by which capital and assets are allocated than they do about how skilled people should be spending their time.

The most important behavior on your part involves dedicating a disproportionate share of your own time, attention, and discretionary resources to creating new business models. Existing businesses, and the leaders in charge of them, face little difficulty in articulating their needs, building a case for their support, and attracting people. Entrepreneurial initiatives, on the other hand, are usually seen as marginal or unimportant in their early stages. Unless you personally allocate to them disproportionate attention, disproportionate resources, and disproportionate talent, they will get squeezed by the existing business to the extent that they never have a chance to take off. Your challenge is to provide counterpressure to the inertial forces that lead your people to constantly attend to the demands of today’s business. [...] By disproportionate resources, we mean budget, access to operating capacity or operating assets, and, most vitally, the very best people. Ironically, these are the very resources that are highly desired by managers of the existing business, who are apt to hotly contest any other claim on them. Like the payment of disproportionate attention, the disproportionate allocation of resources to new business models has its costs. Every dollar and every hour of operations capacity allocated disproportionately to entrepreneurial initiatives is money and time denied the existing business. Disproportionate allocation must be a deliberate process, with commitment of resources being visibly recognized as a matter of strategic choice, not a struggle between long- and short-term goals. [...] Finally, you must be prepared for your organization’s top talent to work on entrepreneurial initiatives. This can create a painful dilemma. When top talent works on an entrepreneurial initiative, the current business is weakened accordingly. However, if only mediocre talent is assigned to the difficult task of new business development, the ventures are doomed. Furthermore, allowing ventures to be run by mediocre people sends an even stronger signal to the rest of the business about your real priorities. The smart people in the firm will recognize that business development is not truly a priority for you, and they will organize their own priorities accordingly. The message: If you don’t walk the talk, only the dumb people will listen.

Professional investment advisers are best at providing other valuable services, including asset allocation guidance, information on tax considerations, and advice on how much to save while you work and how much to spend when you retire. Further, most advisers are always there to consult with you about the financial markets.

I’ve often been cited as an advocate for a similar simple and seemingly rigid asset allocation: your bond position should equal your age, with the remainder in stocks. That asset allocation strategy can serve the needs of many—if not most—investors quite well, but it was never intended to be more than a rule of thumb, a place to begin your thought process.

Asset allocation: “They absolutely, beyond a shadow of a doubt, know they’re going to be wrong . . . so they set up an asset allocation system that will make them successful. They all agree asset allocation is the single most important investment decision.

Your society, at least what I have observed of it, seems not to understand the fundamental inconsistency between individual freedom and the common welfare. The two must be carefully balanced. No group can survive, let alone thrive, unless what is good for the overall community is more important than individual freedom. Take, for example, resource allocation. How can anyone with any intelligence possibly justify, in terms of the overall community, the accumulation and hoarding of enormous material assets by a few individuals when others do not even have food, clothing, and other essentials?

Table Of Contents Introduction The Problem With Contracts The Smart Solution Distinctive Properties What You Need to Know What Is A Smart Contract? Blockchain and Smart Contracts Vitalik Buterin On Smart Contracts Digital and Real-World Applications How Smart Contracts Work Smart Contracts' Historical Background A definition of Smart Contracts The promise What Do All Smart Contracts Have in Common? Elements Of Smart Contracts Characteristics of Smart Contracts Capabilities of Smart Contracts Life Cycle Of A Smart Contract Why Are Smart Contracts Important? How Do Smart Contracts Work? What Does Smart Contract Code Look Like In Practice? The Structure of a Smart Contract Interaction with Traditional Text Agreements Are Smart Contracts Enforceable? Challenges With the Widespread Adoption of Smart Contracts Non-Technical Parties: How Can They Negotiate, Draft, and Adjudicate Smart Contracts? Smart Contracts and the Reliance on “Off-chain” Resources What is the "Final" Agreement Reached by the Parties? The Automated Nature of Smart Contracts Are Smart Contracts Reversible? Smart Contract Modification and Termination The Difficulties of Integrating Specified Ambiguity Into Smart Contracts Do Smart Contracts Really Guarantee Payment? Allocation of Risk for Attacks and Failures Governing Law and Location Best Practices for Smart Contracts Types Of Smart Contracts A Technical Example of a Smart Contract Smart Contract Use-Cases Smart Contracts in Action Smart Contracts and Blockchains In the Automobile Industry Smart Contracts and Blockchains in Finance Smart Contracts and Blockchains In Governments Smart Contracts And Blockchains In Business Management Smart Contracts and Blockchains in Initial Coin Offerings (ICOs) Smart Contracts and Blockchains In Rights Management (Tokens) Smart Contracts And Blockchains In NFTs - Gaming Technology Smart Contracts and Blockchains in the Legal Industry Smart contracts and Blockchains in Real Estate Smart Contracts and Blockchains in Corporate Structures - Building DAOs Smart Contracts and Blockchains in Emerging Technology Smart Contracts and Blockchains In Insurance Companies Smart Contracts and Blockchains in Finance Smart Contracts And Blockchains In Powering DEFI Smart Contracts  and Blockchains In Healthcare Smart Contracts and Blockchains In Other Industries What Smart Contracts Can Give You How Are Smart Contracts Created? Make Your Very Own Smart Contract! Are Smart Contracts Secure?

Of course, I also dismiss the idea that the alpha term in the equation has to be zero. Investment skill exists, even though not everyone has it. Only through thinking about risk-adjusted return might we determine whether an investor possesses superior insight, investment skill or alpha . . . that is, whether the investor adds value. The alpha/beta model is an excellent way to assess portfolios, portfolio managers, investment strategies and asset allocation schemes. It’s really an organized way to think about how much of the return comes from what the environment provides and how much from the manager’s value added. For example, it’s obvious that this manager doesn’t have any skill: Period Benchmark Return Portfolio Return 1 10 10 2 6 6 3 0 0 4 −10 −10 5 20 20 But neither does this manager (who moves just half as much as the benchmark): Period Benchmark Return Portfolio Return 1 10 5 2 6 3 3 0 0 4 −10 −5 5 20 10 Or this one (who moves twice as much): Period Benchmark Return Portfolio Return 1 10 20 2 6 12 3 0 0 4 −10 −20 5 20 40 This one has a little: Period Benchmark Return Portfolio Return 1 10 11 6 2 8 3 0 −1 4 −10 −9 5 20 21 While this one has a lot: Period Benchmark Return Portfolio Return 1 10 12 2 6 10 3 0 3 4 −10 2 5 20 30 This one has a ton, if you can live with the volatility: Period Benchmark Return Portfolio Return 1 10 25 2 6 20 3 0 −5 4 −10 −20 5 20 25 What’s clear from these tables is that “beating the market” and “superior investing” can be far from synonymous—see years one and two in the third example. It’s not just your return that matters, but also what risk you took to get it.

superior results over the long term, including: unorthodox and rational asset class allocations; pioneering and logical strategies within each asset class; unconventional and timely commitments to out-of-favor asset classes; original and disciplined selection of little known asset managers; training and empowerment of relatively young professionals; sensible and innovative structures of investment manager relationships; and disciplined leadership in the integration of endowment management with the overall financial management of the university.

Investment returns stem from decisions regarding three tools of portfolio management: asset allocation, market timing, and security selection.

Given the difficulties in timing markets and the challenges of security selection, such behavior provides a rational foundation for investment management. By avoiding extreme allocation shifts and holding diversified portfolios, investors cause asset allocation to account for the largest share of portfolio returns.

Many investors believe that a law of finance dictates that policy allocation decisions dominate portfolio returns, relegating market timing and security selection actions to secondary status. In a 2000 study, Roger Ibbotson and Paul Kaplan survey a number of articles on the contribution of asset allocation to investment returns. The authors note that “[o]n average, policy accounted for a little more than all of total return,” implying that security selection and market timing make no material contribution to returns.1 In another nod to the centrality of the asset-allocation decision, Ibbotson and Kaplan conclude that “. . . approximately 90 percent of the variability of a fund’s return across time is explained by the variability of policy returns.”2

A strong portfolio management framework rests on asset allocation decisions and incorporates a bias toward equity assets with an appropriate level of diversification. Since market timing actions generally prove unrewarding and always cause portfolios to deviate from desired characteristics, serious investors avoid market timing. Security selection decisions, while extremely difficult to execute with consistent success, contain the potential to add value to portfolio returns. Investors enhance opportunity for beating the market by pursuing excess returns where the degree of opportunity appears largest, by accepting reasonable degrees of illiquidity, and by maintaining a value orientation.

Depreciation is the method accountants use to allocate the cost of equipment and other assets to the total cost of products and services as shown on the income statement. It is based on the same idea as accruals: we want to match as closely as possible the costs of our products and services with what was sold. Most capital investments other than land are depreciated. Accountants attempt to spread the cost of the expenditure over the useful life of the item. There’s more about depreciation in parts 2 and 3.

Since you cannot successfully time the market or select individual stocks, asset allocation should be the major focus of your investment strategy, because it is the only factor affecting your investment risk and return that you can control.

Asset allocation is more than diversification. It means dividing up your money among different classes, or types, of investments (such as stocks, bonds, commodities, or real estate) and in specific proportions that you decide in advance, according to your goals or needs, risk tolerance, and stage of life.

The real payoff of asset allocation comes when you figure out the right mix of how much of your money you keep safe and how much you’re willing to risk to get greater rewards and have the potential to grow faster.

Asset allocation is everything!

That’s why asset allocation is so important. What do all the smartest people in the world say? “I’m going to be wrong.” So they design their asset allocation ideally to make money in the long term even if they’re wrong in the short term.

We know a very successful executive who, upon retirement, put all his investments into high-quality, diversified, municipal bonds. The income from the bonds is more than sufficient for his family’s lifestyle. This executive wants to spend his time traveling and on the golf course—not managing a complex portfolio of assorted securities. His simple portfolio may be unusual, but we think it’s probably a very suitable portfolio for him. However, most of us want a return greater than is available from savings, CDs, and bonds. This is why we use stocks to provide the growth and additional income needed to meet our goals. DESIGNING OUR PERSONAL ASSET ALLOCATION PLAN We have discussed the Efficient Market Theory and Modern Portfolio Theory.

Figuring out how to allocate your assets doesn’t need to be difficult. Obviously, as my grandmother liked to remind me, you don’t want to keep all your eggs in one basket. But how do you know what proportion of your nest egg should be invested in equities vs. fixed-income securities? There are all sorts of ways to calculate this. For my part, I prefer the following simple rule of thumb. Take your age and subtract it from 110. The number you get is the percentage of your assets that should go into equities; the remainder should go into bonds or other fixed-income investments.

In the theory of classic disruption, established customers initially reject the inferior, good-enough offer, and hence create a liability for incumbents, for whom allocating resources to the disruptive offer meant going against the feedback of their best customers. This was the tension at the root of the dilemma in Clayton Christensen’s The Innovator’s Dilemma.3 In contrast, established customer relationships are an asset in introducing ecosystem disruption, as they open the door to credibility and ecosystem carryover

I do not bother with oversea holdings, nor am I concerned about asset or sector allocation - I am focused on particular stocks. Let me explain my reasons. If you're a manager of large institutional funds you'll usually aim for X% in the USA, Y% in South East Asia, Z% in Europe, etc., and similarly a certain percentage in banks and financial stocks, another in media, and yet another in healthcare, etc., and this is the right approach. But I believe that the private investor should forget about all this for their more modestly sized portfolios. I like UK-headquartered and quoted businesses which operate internationally anyway as they seek world markets for their products or services.

Controlled economy was the economic base of totalitarianism and fertile soil for bureaucratic privilege. Under a highly centralized political and economic system, survival depended on bureaucrats who could arbitrarily allocate state assets and ration the necessities of daily life. A strict household-registration system ensured that the vast majority of China’s peasants never ventured far from where they were born. Employees of government organs and state-run enterprises had their housing and all their daily necessities allocated by their work units. Secret dossiers decided the fate of every cadre and worker.

A better approach is to put your investment strategy on autopilot by consciously not changing your asset allocation or investment mix unless there is a significant change in your own circumstances.

Although you should not let your emotional responses dictate your allocation, you do need to sleep at night, and your personal preferences are an important part of your asset class structure.