by Lars Kroijer
Think about your non-investment assets and liabilities in the context of your portfolio as it stands today. Are you running the risk of everything going badly for you at the same time by being unduly concentrated in your assets? Think about how having a broadly diversified rational portfolio will help remedy this problem.
Think about tax. You probably are already, but do so in the context of how it can reduce your investing costs. Perhaps this means an ISA in the UK, or a tax-efficient pension product, but there may well be other opportunities to be smart about taxes. It probably makes sense to get some professional help here.
Whatever you do, implement your portfolio cheaply and don’t trade a lot. This alone will serve you well in the long run. You will be getting a little bit richer while you sleep than you otherwise would be.
Our simple rational portfolio enjoys massive advantages over traditional approaches to investing:
We’re much closer to a theoretically optimal allocation so have a better risk/return to start with.
We’re much, much cheaper. The compounding drag of fees makes it very hard for an active approach to beat us in the long run.
Please act on the advice in this book. You will be investing without speculation and that should make you sleep better at night.
Index
accountants
active managers
compared with index trackers, 2nd
performance over time
active personal portfolio management
adding up the costs of
advisory charges
age
life stages of financial planning
and risk profile
AIG
allocations see investment allocations
alternative investments
alternative weightings
‘angel’ investing, 2nd
annuities
IRR (internal rate of return), 2nd
apocalypse investing
avoiding fraud
and financial disasters
and gold as security
assets
asset classes to avoid
concentration risk
customisation and noninvestment
growth of, and overpayment of fees
and institutional investors
intangible
and liabilities
and portfolio theory
in the rational portfolio, assets split
tangible
see also minimal risk assets
avoiding fraud
banks
bailouts
cash deposits with
and financial disaster
and gold as security
and property investment
Barclays US High Yield index
Bernstein, William
The Intelligent Asset Allocator
bid/offer spread
black swan events, 2nd, 3rd
Bogle, John
bonds
bond indices, 2nd
dollar domination of
ETFs, 2nd
and financial planning
income from coupon payments
indices
and the rational portfolio
adding other bonds to
risk preferences, 2nd
rebalancing your portfolio
‘risky’ bonds and liquidity
shortterm, 2nd
see also corporate bonds; government bonds; minimal risk assets
Brazil
government bonds
broad-based portfolios
and liquidity
world equities, 2nd, 3rd, 4th, 5th
Buffett, Warren, 2nd
fee structure
capital gains tax (CGT), 2nd, 3rd
and gifts
car insurance
Case-Shiller House Price index, 2nd
cash deposits
deposit insurance
government guarantees
risk of
CGT see capital gains tax (CGT)
civil unrest
collectibles
commercial property market
commodities, 2nd
returns form
company shares
comparison sites, 2nd
enhanced independent
Contagion (film)
corporate bonds
adding to minimal risk assets, 2nd, 3rd
and financial planning
and credit quality
ETFs, 2nd
and financial planning
liquidity of
and minimal risk assets
and portfolio theory, 2nd
and the rational portfolio, 2nd, 3rd
adjusting
allocations, 2nd
risk preferences
real return expectations
world corporate debt
yields, 2nd
costs see fees and expenses
CRB Commodity index
CRB Total Return index, 2nd
credit ratings
government bonds, 2nd, 3rd, 4th
adding to minimal risk assets
currency
and government bonds, 2nd, 3rd, 4th
matching
and world equities
currency-hedged investment products
custody charges
customisation
Cyprus
defined benefits pension schemes
defined contribution pension schemes
diversification
and assets
benefits of
and corporate bonds, 2nd
and equity market risk
geographical
and government bonds, 2nd
and the rational portfolio, 2nd
and world equities, 2nd
Dow Jones index
Industrial Average
recovery from losses
drop dead allocation
early savers
edge over the markets see investment edge
efficiency frontiers
EIS (Enterprise Investment Schemes)
Elton, Edwin
Modern Portfolio Theory and Investment Analysis
emerging market companies
listed on Western exchanges
Enterprise Investment Schemes (EIS)
equities
and government and corporate bonds
performance
and portfolio theory
and property investment
and the rational portfolio
allocations
risk preferences, 2nd
rebalancing your portfolio
risk of
diversification and false sense of security
recovering from large losses
standard deviation, 2nd, 3rd
view that markets will always bounce back
see also world equities
equity risk premium
and financial planning
ETFs (exchange traded funds), 2nd, 3rd, 4th
advantages to owning
buying bonds, 2nd, 3rd
commodity trading
customisation
fees and expenses
in global property
and gold trading
implementing
and index funds
leveraged
maturities
and minimal risk bonds, 2nd
physical or synthetic
rebalancing your portfolio
and taxes
total expense ratio (TER)
tracking errors
European Union bonds, 2nd
expenses see fees and expenses
fat tails
fees and expenses, 2nd
adding up costs
alternative investments
benefits of paying lower fees
and comparison websites
financial advisers
index trackers compared with active managers
and investm
ent edge
pension plans
and performance
impact over time
mutual funds, 2nd
and the rational investor
and the rational portfolio, 2nd
rebalancing your portfolio
Ferri, Richard
All About Asset Allocation
financial advisers, 2nd
and comparison websites
financial crisis 2008–09
and commodities trading
and currency matching
and government bonds yields
and high risk preferences
and liquidity
and longterm financial planning, 2nd
and market risk, 2nd, 3rd, 4th
financial planning
building your savings
and the financial crisis 2008–09, 2nd
and investment allocations, 2nd, 3rd
and life stages
and risk, 2nd
risk surveys
rules of thumb to consider
supercautious savers
financial software packages
France
government bonds
fraud, avoiding
frequent trading
FTSE All-Share index
FTSE All-Share Tracker fund
FTSE NAREIT Global index, 2nd, 3rd
fund pickers
future performance
mutual funds
GDP
and corporate bonds
and world equity market value, 2nd
Germany
government bonds
gifts
and capital gains tax
gold, 2nd
as security
Goldman Sachs
government bonds
adding to minimal risk assets, 2nd
and financial planning
and bank deposits
banks and government defaults
buying in base currency, 2nd
credit ratings, 2nd, 3rd, 4th
and diversification
earnings
ETFs, 2nd
and the financial crisis (2008)
and financial planning
inflationprotected
liquidity of
longerterm
maturity
minimal risk
and world equities, 2nd, 3rd
and portfolio theory, 2nd, 3rd
and the rational portfolio, 2nd, 3rd
adjusting, 2nd, 3rd
allocations, 2nd
risk preferences
real return expectations
time horizons
yields
Greece
government debt and bond yields
hedge funds, 2nd, 3rd, 4th
Japanese government bonds
and liquidity
high risk preferences
home markets
overinvestment in
Icelandic banks
income tax
index funds, 2nd
and ETFs
and government bonds
implementing
maturities
and minimal risk bonds, 2nd
total expense ratio (TER)
tracking errors
index-tracking products, 2nd
and active managers
adding bonds to a portfolio
compared with active managers, 2nd
comparison sites, 2nd
enhanced independent
costs of
fund changes and taxes
future product development
implementing
license fees for
and liquidity
and mutual funds
and the rational portfolio, 2nd, 3rd
different risk preferences
total expense ratio (TER), 2nd
versus mutual fund returns over time
world equities, 2nd
see also ETFs (exchange traded funds); index funds
India
government bonds
inflation
earnings from minimal risk bonds
inflation-adjusted government bonds
inflation-protected bonds
returns on world equities
information/research costs
institutional investors
insurance
buying
deposit insurance schemes
intangible assets
interest rates
cash deposits in banks
government bonds, 2nd
international investment
investment allocations
adding other government and corporate bonds
and financial planning, 2nd, 3rd
flexibility of financial goals
life stages
rebalancing your portfolio, 2nd
investment edge, 2nd
absence of, 2nd
adding up the costs
asset classes to avoid
and commodities trading, 2nd
and the competition
different ways of having
and expenses
and performance
picking your moment
and private investments
and the rational portfolio
reconsidering your edge
and world equities
‘invisible hand’ of the market
IOUs (promissory notes)
IRR (internal rate of return)
annuities, 2nd
iShares, 2nd
Ishikawa, Tets
How I Caused the Credit Crunch
Japan
commodities trading
government bonds
Nikkei index
jewellery
leverage
ETFs
and mortgages
portfolios
liabilities
and the rational portfolio
life insurance, 2nd
life stages
and financial planning
liquidity
equity portfolio and ‘risky’ bonds
and ETFs
minimal risk
and private investments
and the rational portfolio, 2nd, 3rd
returns on illiquid investments
selling your investment, 2nd
localised risks
avoiding
and noninvestment assets
Madoff, Bernie
market capitalisation
and world equities, 2nd
market efficiency and inefficiency
Mexico
government bonds
Microsoft investors, 2nd, 3rd
and liquidity, 2nd
mid-life savers
minimal risk assets, 2nd
adding other bonds to
corporate bonds, 2nd, 3rd
government bonds, 2nd
adjusting the risk profile
asset classes to avoid
buying
and diversification
and equity markets
ETFs
and financial planning
50/50 split with world equities, 2nd, 3rd
allocations
government bonds
earnings
inflation-protected
time horizons of
inflationprotected bonds
and liquidity
as optimal portfolio
and portfolio theory, 2nd
in the rational portfolio, 2nd, 3rd, 4th, 5th, 6th
real return expectations
and world equities, 2nd
Morgan Stanley
mortgages
and currency matching
and leverage
MSCI World Index, 2nd, 3rd, 4th
mutual funds
fees and performance, 2nd
and index trackers
national economies
and equity market risk
OEICs (openended investmen
t companies)
oil trading, 2nd
optimal portfolio theory
minimal risk asset
past performance
and future performance
Paulson, John
pension funds, 2nd, 3rd
benefits and charges
defined benefits schemes
underfunded
performance
and fees
index trackers
versus active managers
versus mutual funds
portfolio theory
and government bonds
optimal
and the rational investor
price impact
private equity capital, 2nd
private investments, 2nd
and liquidity
privatisations
and world equities
professional investment managers
property market investments, 2nd
avoiding
and financial disasters
institutional investors
and liquidity
and the rational portfolio
US subprime housing markets, 2nd, 3rd
rational investing, 2nd
core of
ongoing tasks of
rational portfolio
adding other bonds to
adjusting
allocations
and equity risk
return expectations
asset classes to avoid
assets and liabilities
assets split
checklist
corporate bonds, 2nd
diversification
financial benefits of
and financial disasters
geographical diversification
government bonds, 2nd, 3rd, 4th, 5th
implementation
incorporating other assets
and investment edge
key components of a
and liquidity, 2nd, 3rd
and pension plans
and portfolio theory
and risk preferences
risk/return profile, 2nd, 3rd, 4th
tailoring to specific needs and circumstances
tax adjustments
tax benefits of holding
and tax efficiency, 2nd, 3rd, 4th
world equities, 2nd, 3rd, 4th
see also minimal risk assets
rebalancing your portfolio
ticket size
REITs (Real Estate Investment Trusts)
residential property market
retirees
investment allocation
retirement
annuities
and financial planning
risk
cash deposits
credit risk and corporate bonds
of equity markets
equity risk premium
high risk preferences
and longterm financial planning, 2nd
and the optimised market
and the rational portfolio, 2nd, 3rd
