All About Asset Allocation, Second Edition by Richard Ferri

By Richard Ferri

By way of making an investment in your destiny, there is just one convinced BET—ASSET ALLOCATION the straightforward approach to start every little thing you must find out about easy methods to: enforce a sensible asset allocation method Diversify your investments with shares, bonds, genuine property, and different sessions swap your allocation and lock in earnings attempting to outwit the marketplace is a nasty gamble. in case you are enthusiastic about making an investment for the longer term, you'll want to take a no-nonsense, businesslike method of your portfolio. as well as overlaying all of the fundamentals, this new version of All approximately Asset Allocation comprises well timed recommendation on: studying which investments paintings good jointly and why selecting the best mutual cash and ETFs growing an asset allocation that’s correct in your wishes figuring out how and while to alter an allocation knowing target-date mutual money "All approximately Asset Allocation bargains suggestion that's either prudent and practical--keep it easy, diversify, and, particularly, preserve your bills low--from an writer who either is aware how important asset allocation is to funding good fortune and, most vital, works with genuine people." -- John C. Bogle, founder and previous CEO, the leading edge team "With All approximately Asset Allocation at your aspect, you will be executing a legitimate funding plan, utilizing the easiest fabrics and donning the simplest safeguard rope that cash can buy." -- William Bernstein, founder, Effi cientFrontier.com, and writer, The clever Asset Allocator

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One of the oldest axioms on Wall Street is that there is no free lunch. You do not get something for nothing. Investors who take no investment risk should expect no return after adjusting for inflation and taxes. Unfortunately, taking investment risk also means that you can and will lose money at times. There is simply no way around this. There is no free lunch. The risk and return relationship of business is one of the few laws of economics that has stood the test of time throughout history. If people tell you otherwise, they are either selling snake oil or they are naive.

T-bills do have a reliable positive return; however, that return is subject to the corrosive effects of taxes and inflation. Figure 2-1 highlights the year-over-year T-bill return minus 25 percent income tax and the inflation rate. There have been many years when the rate of return on T-bills has not kept pace with the inflation rate after taxes. Investors in T-bills and money market funds are losing purchasing power in the years when the bar in Figure 2-1 is below 0 percent. During these years, money invested in T-bills buys fewer goods and services than it did one year earlier.

Temporary loss of money in an account is not enjoyable; however, it can be controlled to a point. Developing and maintaining a longterm investment plan reduces overall portfolio risk, and that lowers the tendency for investors to overreact in a bear market. This fact alone increases the probability of investors reaching their financial goals. Understanding Investment Risk 39 There is a long-standing relationship between risk and return in any financial market. The markets with higher than expected return have the greatest uncertainty that this return will occur in the short term.

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