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Asset Dedication: How to Grow Wealthy with the Next Generation of Asset Allocation 1st Edition
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The first book to close theperilous gaps in―andenhance the performanceof―asset allocation
Asset allocation is one of today’s bestknowninvestment approaches. Problem is,its major precept―that a magic-number,fixed-percentage asset mix will providesuperior results for investors who have dramaticallydifferent goals and needs―is scientificallyunproven and fundamentally flawed.
Asset Dedication updates the asset allocationmodel, outlining a seven-step processdesigned to more effectively meet the realneeds of real investors. Showing investorshow to design low-risk portfolios that moreaccurately and successfully dedicate assets,this breakthrough book helps investors fillin the gaps inherent to asset allocation bydemonstrating:
- Techniques for ascertaining the bestasset mix by determining individualneeds and goals
- How asset dedication providessuperior protection against inflationand market risk
- Investing strategies for the threeinvestment life phases―accumulation,distribution, and transfer
- ISBN-100071434828
- ISBN-13978-0071434829
- Edition1st
- PublisherMcGraw Hill
- Publication dateAugust 1, 2004
- LanguageEnglish
- Dimensions6.3 x 1.1 x 9.1 inches
- Print length288 pages
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From the Publisher
Stephen J. Huxley, Ph.D., and J. Brent Burns (San Francisco, CA) are founding partners of Asset Dedication, L.L.C. Dr. Huxley, a registered investment adviser, is a professor of decision sciences at the University of San Francisco.
From the Back Cover
The breakthrough technique that outperforms asset allocation--and takes your portfolio to the next level
Over the past two decades, asset allocation has become the holy grail of investment techniques. Experts championed it, brokers and financial planners sold it, clients bought it, and few questioned the wisdom of trying to squeeze widely varying investors and their financial goals into prefabricated "one size fits all" allocation formulas.
Problem is, asset allocation has significant flaws in the way it is used today, especially for personal investors. Asset Dedication exposes these flaws, corrects them, and propels investors and advisors into the next generation of personal investing. This revolutionary book introduces asset dedication, an investment program based on the latest techniques in modern financial management technology that will allow you to:
- Improve a portfolio's performance by constructing a seven-step, personalized asset dedication program
- Design financial strategies tailored to fit the three investing phases of life--accumulation, distribution, and transfer
- Build a flexible but passive set-it-and-forget-it portfolio that matches or exceeds actively managed portfolios without high fees and "loads"
The time is long past for the shortcomings of asset allocation to be revealed and repaired. Asset Dedication shows how to build a personalized portfolio, one that has been proven through extensive backtesting to consistently outperform asset allocation and meet your financial wants and needs over both the short- and long-term.
"New ideas often take a long time to replace old ideas. The purpose of this book is to introduce a new idea: asset dedication. It is a strategy that works. The evidence is here."--From Chapter 1
To anyone who has taken the time to look, it has become clear that asset allocation has severe drawbacks. Chief among those is the focus on applying static, set-in-stone formulas to a narrow range of "model" portfolios and forcing a wide range of investors to follow them. This may help brokers to quickly pigeonhole investors into pre-set allocation models with their generic, impersonal formulas, but fails to provide truly customized portfolios. Meeting the widely varying needs, resources, and goals of individual investors precisely and safely is exactly where asset allocation falls short, and reveals its own fundamental flaws.
Asset Dedication breaks the monopoly that asset allocation has held over individual investors. It provides a rationale for why each dollar is invested in stocks, bonds, or cash and how to dedicate the precise amount in each asset class to do the job it does best--no more, no less:
- Just enough cash to meet emergency needs
- Just enough in bonds to provide sufficient and steady income
- Everything else in stocks for long-term growth
Asset dedication represents the first major shift in investment strategy since the popularization of asset allocation in the 1980s. Historical comparisons show that it achieves better performance than the traditional and often arbitrary fixed-formula asset allocation approach.
Asset allocation is about to replaced by a new technique that promises to shift the ways in which investors at every level, especially retirees, approach their investment decisions. Asset Dedication introduces you to this focused new approach, shows how to break the stranglehold that asset allocation holds on your portfolio, and helps you, once and for all, to become the master of your current and future financial success.
About the Author
Stephen J. Huxley, Ph.D., and J. Brent Burns(San Francisco, CA) are founding partnersof Asset Dedication, L.L.C. Dr. Huxley, aregistered investment adviser, is a professorof decision sciences at the University ofSan Francisco.
McGraw-Hill authors represent the leading experts in their fields and are dedicated to improving the lives, careers, and interests of readers worldwide
Product details
- Publisher : McGraw Hill; 1st edition (August 1, 2004)
- Language : English
- Hardcover : 288 pages
- ISBN-10 : 0071434828
- ISBN-13 : 978-0071434829
- Item Weight : 1.37 pounds
- Dimensions : 6.3 x 1.1 x 9.1 inches
- Best Sellers Rank: #332,118 in Books (See Top 100 in Books)
- #91 in Computer Programming Languages
- #101 in Business Investments
- #829 in Programming Languages (Books)
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I look forward to using the "rolling" bond ladder in years ahead when interest rates are hopefully higher to create an even more efficient portfolio.
Client used to leave an appointment "hoping" that their selection of Bonds vs. Stocks proportions was appropriate. Now they walk away saying that they have a certain number of years of income set aside and are therefore comfortable with the volatility of the growth portion of their portfolios. They are comfortable because we have "bought time" which is an essential ingredient to growth.
If one retires at 65, this program would have one 100% in stocks at 75, 85, and 95. Human capital could likely not bail one out from a bad turn in stocks.
They do allow that one could extend one's ladder annually or opportunistically. These seem more reasonable. But annual extension is just asset allocation with a rising bond allocation. Opportunistic extensions are market timing, with no assurance of making correct calls.
There are more places in this book where my reaction was "that is just wrong" than in anything else I have read in a good while. It makes me distrust any example given. One is lead to wonder if periods are cherry-picked to make the case.
There aren't great answers for those questions. The authors propose an alternative model that, on the surface, has promise. The amount of bonds you hold is the amount required to meet your short-term obligations. That is, if you need $50,000 a year to live on then hold 5 years of bonds, for a total of $250,000. The amount of bonds you hold are based on goals.
That all sounds great but the devil is in the details. At its heart, this is the same "bucket" strategy that has been written about in other places and has all the same open questions those do. Why pick a 5-year planning cycle? How is that any less arbitrary than picking 40% bonds? Why not a 7-year planning cycle? Or a 15-year planning cycle?
The backtesting in the book is not adequate. They test the performance of their strategy over a 10-year period. But the real test of a strategy like this is seeing what happens when you "refill" the bonds. There is nothing in the book showing how that works in practice. What if you suddenly need to buy 10 years of bonds right after the market has dropped 50%?
There are a few statements suggesting investors can adopt a dynamic approach (refill bonds when the market is "good" but not "bad"?) but no actionable guidelines are given.
A bigger problem is that the book doesn't tell you how to build the bond ladder. It just says, "doing so requires complicated math so go to our website". One entire chapter is just a tutorial on how to use their website. The book came out in 2005 -- 12 years ago. The website still exists but when I quickly checked I couldn't find any trace of the calculator the book references. Perhaps it was removed at some point in the past two decades.
The result is that the reader is left with a theory they can't put into practice.
The book is already on the shorter side but much of it is padding unrelated to the asset dedication concept. These chapters aren't bad or anything. (Neither are they especially noteworthy, though.) They just don't have anything to do with asset dedication so they feel out of place. There are sections on "why interest rates exist" and "finding a financial advisor" and "angel investing and IPOs" and "mutual funds diversify risk".