Balanced Asset Allocation: How to Profit in Any Economic Climate

by Alex Shahidi, Bill Lee (Foreword)

The conventional portfolio is prone to frequent and potentially devastating losses because it is NOT balanced to different economic outcomes. In contrast, a truly balanced portfolio can help investors reduce risk and more reliably achieve their objectives. This simple fact would surprise most investors, from beginners to professionals. Investment consultant Alex Shahidi puts his 15 years of experience advising the most sophisticated investors in the world and managing multi-billion dollar portfolios to work in this important resource for investors. You will better understand why nearly every portfolio is poorly balanced and how to view the crucial asset allocation decision from a deeper, more thoughtful perspective. The concepts presented are simple, intuitive and easy to implement for every investor. Author Alex Shahidi will walk you through the logic behind the balanced portfolio framework and provide step-by-step instructions on how to build a truly balanced portfolio. No book has ever been written that discusses asset allocation in this light. For those who want to better manage their investment portfolio and seek a more advanced approach to building a balanced portfolio, Balanced Asset How to Profit in Any Economic Climate  provides an in-depth treatment of the topic that can be put to use immediately.

Genres: Finance

224 pages, Hardcover

First published April 14, 2014

Reviews

[Nouvel Diamant]

I have serious concerns with this book:

The author proposes in what he calls the 'balanced portfolio' an asset allocation with
20% Equities
20% Commodities
30% US Government Long-Term Treasuries
30% US Government Long-Term TIPS

Instead of the 'traditonal' 60/40 asset allocation with
60% Equities, and
40% Bonds (Total Bond Market)

In case you are interested in this balanced portfolio, I would suggest you jump to the updated figures on the internet (link on page 197):
Since 1927 the balanced portfolio underperforms the 60/40 allocation by 0.5 % per year (!) and over the last 75 year by 0.4%...

My concerns with the proposed asset allocation in the balanced portfolio are as follows:

a) Within commodities you would invest (through a broad market index like S&P GSCI) more than 50 percent (!) in oil and gaz. Is this what you really want to do in the current environment with climate change?

b) With the treasuries and TIPS allocation you would invest 60% (!) of your assets in bonds issued by the US government: This is a cluster riks and political risk no investor can bear.
Further, we have a history of about 200 years with government bonds in 'developed' countries: They default more often than one would assume.

In summary: An asset allocation with 10% in Oil & Gaz and 60% in US government bonds seems not reasonable to me for a long term investment horizon.

[Shaun W · Rating 4 out of 5]

Interesting and well written approach to set up a risk-neutral portfolio by looking at how various asset classes behave in different growth and inflation scenarios based on the Bridgewater All-Weather Strategy.

This book primarily looks at investing in equity, treasury, TIPS and commodity classes with justification for including them and the appropriate percentages to be market neutral based on historic returns and volatilities. Also discussed is how additional asset classes (e.g. real estate, corp bonds, EMG, hedge funds) could be incorporated into this methodology.

All the economic cycles between 1927-current are covered and backtested, and data is provided contrasting performance v traditional 60% equity 40% fixed income allocations.

[Saurabh · Rating 4 out of 5]

Highly underrated book. It starts with explaining basic economic concepts in the simplest manner without fluff, that forms the basis for balanced asset allocation. The author breaks down a complicated topic of global asset allocation into a very simple step by step methodology with clear reasoning backed up by backtests going all the way back to 1927. Explains clearly why 60-40 is unbalanced. The best part is he manages to adjust the allocations for volatility with the simplest of math, no formulas. The outcome is a simple allocation that beats 60-40 over a century. This should be considered as a starting point for any further tactical variations.

[Tal K · Rating 5 out of 5]

This was the foundation to my personal all-weather version of a portfolio that I incorporated in my investing methodology.
The authors clarify why do we need more than just stocks and bonds in our portfolio with easy to understand illustrations and examples.
I would recommend this book to any investor who wants to create a balanced, risk-reduced portfolio, and has the ability to navigate the complex waters of financial asset types.
I personally modified the portfolio and have come to some 8-9 asset types in the all-weather, reaching around 9.5% average return (including dividends) by investing in ETFs that mimic the relevant asset classes

[Quan Bao Truong · Rating 4 out of 5]

This is a good book that presents a new way to construct portfolio that beat the traditional 60/40 allocation with less volatility. The authors presents many historical data to support his view and I find it convincing. However this approach seems only applicable to US investor only. Also, if you are following the 80/20 portfolio then this new balanced portfolio may not be able to beat that.

[Kirill · Rating 3 out of 5]

A great book for someone who has 18 billion dollars lying around in a savings account.

[João André · Rating 4 out of 5]

I have read a LOT of investing books in my lifetime, but after reading this one I feel like i've come full circle.

Honestly, the content presented in this book pretty much sums up exactly what a balanced portfolio should look like, while proving that you don't need to know what's going to happen next to the economy in order to achieve excess returns without the volatility that is normally linked to the classic 60/40 portfolio allocation.

Do yourself a favor and go read this book. Your portfolio will thank you later.