Balanced Asset Allocation. Lee Bill

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      Cover design: © iStockphoto.com/Sergey Nivens

      Copyright © 2015 by Alex Shahidi. All rights reserved.

      Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

      Published simultaneously in Canada.

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       Library of Congress Cataloging-in-Publication Data

      Shahidi, Alex.

      Balanced asset allocation: how to profit in any economic climate / Alex Shahidi; [foreword by] Ray Dalio.

      pages cm. – (Wiley finance)

      ISBN 978-1-118-71194-1 (hardback) –ISBN 978-1-118-71217-7 (ePDF) –ISBN 978-1-118-71202-3 (ePub)

      1. Finance, Personal. 2. Investments. 3. Portfolio management. I. Title.

      HG179.S42577 2014

      332.6–dc23

      2014029359

      Foreword

      Let's face it – everyone needs a catalyst now and then. For me, this book has been a wake-up call; it has heightened my awareness of the risks in the portfolios I manage, and reminded me that managing money is as much art as it is science. Reading Balanced Asset Allocation has both reinvigorated my perspective related to constructing portfolios, but also given me valuable insights into how the portfolios could react under different economic conditions. Balancing risks and diversifying is what my job is all about. As an institutional investor, I have put the concepts of this book to work in the portfolios I manage. But as the saying goes, the cobbler's children have poor shoes, and I need to do a better job in my personal portfolios.

      By explaining how to balance the risks in a portfolio, Alex has written a book that is completely accessible and useful across a wide spectrum of investors. Both the institutional investor managing billions and the average investor saving for retirement over a long time horizon can benefit. You don't need a lot of math skill to implement a balanced portfolio. The recipe is right here in the book. Alex does a wonderful job explaining why the economic machine works the way it does. You don't have to know the volatility of the stock market or the bond market, although the book spends time showing the reader how the numbers work if they are so inclined. The problem with the way we currently invest our portfolios is that they are too dependent on stock market risk. This book shows us a different path. We can construct portfolios with less stock market risk and over time, be fairly confident of achieving similar returns with fewer ups and downs.

      What I like about the risk parity concept, pioneered by Bridgewater Associates, is that it explicitly addresses the real world economic events that impact our portfolios, and gives us options when traditional diversification efforts may not always work. The economic machine that produces rising and falling growth and rising and falling inflation, are the big four scenarios that our portfolios should be built to withstand. By balancing risks to these four economic scenarios and rebalancing as necessary, we don't have to worry so much about which stocks are correlated and which bonds are correlated. Correlation is one of the most difficult statistics to rely upon – especially in times of market stress. A balanced portfolio is a different and vitally important way to look at investing. Reading this book will open your eyes to a new perspective. I found it to be a useful and enjoyable read.

      Acknowledgments

      I wrote this book with the intention of sharing core investment concepts that I thought might be informative for the majority of investors.