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Asset Allocation: Balancing Financial Risk
Financial experts Asset allocation is the key strategies for maintaining a consistent yet superior rate of investment return. Now, Roger Gibson's Asset Allocation - the bestselling reference book on this popular subject for a decade has been updated to keep pace with the latest developments and findings. This Third Edition provides step-by-step strategies for implementing asset allocation in a high return/low risk portfolio, educating financial planning clients on the solid logic behind asset allocation, and more.
317 pages, Hardcover
First published October 20, 1989
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729 people want to read
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Displaying 1 - 17 of 17 reviews
March 3, 2017
Gibson's Asset Allocation is a book written for readers interested in advance topics in investment or for potential financial investment managers. Readers with some statistical background may find the discussion of risk and time horizon very informative and appealing, but may be too specialized for others. In the beginning, Gibson revisits common investment basics with some mathematical angle such as correlations comparison among different assets. This segues into the importance of broadening and diversifying portfolio to mitigate inherent and unnecessary risk in subsequent chapters. The middle of the book discusses more on establishing "efficient frontier" and optimizing portfolio, topics that may interests those keen on seeking "active" management and optimization. Last chapters of the book focuses on client management as well as reflection of the 2008 financial crisis.
Asset Allocation, in comparison with most investment books I have read, introduces "uncommon" assets to broaden investment portfolio such commodities as well as international bonds, and why they are necessary in diversification of a portfolio. In summary, I find most of the content informative if not interesting, but would only recommend this for people with a penchant for statistics and in-depth analysis of asset allocation.
Asset Allocation, in comparison with most investment books I have read, introduces "uncommon" assets to broaden investment portfolio such commodities as well as international bonds, and why they are necessary in diversification of a portfolio. In summary, I find most of the content informative if not interesting, but would only recommend this for people with a penchant for statistics and in-depth analysis of asset allocation.
September 18, 2008
Unlike some of the other money management books I’ve read, this book is very technical, academic, and unbiased. The fundamental theme of the book is that the two risks investors face are volatility and inflation. Depending on the investment time table longer investments are subject to inflation and should be kept mostly in equities while short term investments are more affect by volatility and should be kept in fixed income securities such as bonds. Most of Gibson’s book is geared for investment managers and as a result he focuses a lot of dealing with clients expectations. He does mention that market timing is very difficult as is superior stock selection, but he does not advocate index funds as much as the books by Bernstein and Ellis, nor does he criticize the fact that most money managers do not beat the market. In fact he actually says higher fees are warranted as long as the manager is doing a good job, where a good job means keeping the portfolio balanced. Interestingly enough, even though time decreases the effects of volatility, a well balanced portfolio will likely provide higher returns than a single highly volatile asset class because the extra risk in associated with lower diversification is not rewarded by the diverse market. Gibson makes almost no mention of small value or growth asset classes, just large and small company stocks. He stressess foreign investment in bonds and stocks to properly diversify more than previous books, along with some exposure to REITs and commodities. He cautions the danger of comparing a truly diverse portfolio with the usual US benchmark such as the S&P. Overall this is a very informative, objective, financial book giving a good academic background, but focuses too much on an audience made of professional money managers.
September 1, 2018
Solid technical read. Particularly liked the discussions on portfolio diversification and withdrawal rates. As a minor complaint, it might have been helpful in some places (e.g the histogram of yearly us stock returns) if returns were adjusted for inflation.
July 16, 2008
According to some studies, asset allocation can determine up to 90 percent of a portfolio’s performance. Yet neither investors, money managers, nor the financial press seem to give much attention to this topic. In "Asset Allocation: Balancing Financial Risk," author Roger Gibson explains the importance of asset allocation not only in helping investors to realize higher returns, but also in controlling risk. "Asset Allocation" is designed to help investors who have already mastered basic investing concepts to take the next step and practically apply these concepts to design a better portfolio for themselves.
Gibson emphasizes that successful money management requires the successful management of investors’ expectations. Therefore, before actually managing their money and allocating assets to classes such as bonds and stocks, investors should develop an investment philosophy that incorporates a realistic outlook as far as the risk and return they should expect with each asset class, and the relationship of asset classes to one another. As part of this discussion, Gibson provides great detailed information about the historical performance of various investments, including Treasury bills, bonds, and stocks, showing their returns in comparison to their volatility, as well as their correlation to one another. Gibson also discusses the two most important money management risks – inflation and volatility – and illustrates how investors' time horizons are the key variables in determining which risk they should be most concerned with.
Only after investors’ expectations are managed – and they realize that, with reward, comes risk – can they begin to make asset allocation decisions. In discussing the choice between assets, Gibson provides a framework to show investors how diversification can benefit a portfolio but limits most of the discussion to a four-asset-class portfolio, including the S&P 500 (large domestic stocks), EAFE (international stocks, NAREIT (real estate securities) and GSCI (commodities), to provide broad generalizations about the rewards of multiple-asset-class investing. In addition to providing this general discussion, Gibson includes sample asset allocations for investors based on risk preferences. However, the discussion concerning these asset allocations is limited, with no explanation, for example, of why investors with a low risk tolerance would include international bonds and commodities as asset classes in their portfolios and what type of returns these portfolios might generate. Without going into more detail about sample recommended portfolios for different investors, or at least more detail about guidelines he would use for choosing asset classes and allocating percentages to them, Gibson falls short of providing a comprehensive tool for investors to use to actually design their own portfolios.
In the end, "Asset Allocation" spends less time giving practical advice about how to allocate assets and instead spends more time explaining the concepts of why asset allocation is important. For readers looking for more practical guidance on how to allocate their assets, "Asset Allocation" may not be the final answer. However, it still provides valuable information in order to get investors to realistically think about the risk and reward of various asset classes and develop an investment philosophy grounded in the basic concepts of controlling costs and diversifying assets. In his classic investing book, "The Four Pillars of Investing," Dr. William Bernstein included "Asset Allocation" on his recommended reading list for investors who are "good with numbers and don’t mind a little effort." Although it lacks the easy accessibility and organization of "The Four Pillars of Investing," "Asset Allocation" provides just as much information, particularly in the various tables and figures, to give investors who are willing to put in the effort a solid foundation on the important topic of asset allocation.
Gibson emphasizes that successful money management requires the successful management of investors’ expectations. Therefore, before actually managing their money and allocating assets to classes such as bonds and stocks, investors should develop an investment philosophy that incorporates a realistic outlook as far as the risk and return they should expect with each asset class, and the relationship of asset classes to one another. As part of this discussion, Gibson provides great detailed information about the historical performance of various investments, including Treasury bills, bonds, and stocks, showing their returns in comparison to their volatility, as well as their correlation to one another. Gibson also discusses the two most important money management risks – inflation and volatility – and illustrates how investors' time horizons are the key variables in determining which risk they should be most concerned with.
Only after investors’ expectations are managed – and they realize that, with reward, comes risk – can they begin to make asset allocation decisions. In discussing the choice between assets, Gibson provides a framework to show investors how diversification can benefit a portfolio but limits most of the discussion to a four-asset-class portfolio, including the S&P 500 (large domestic stocks), EAFE (international stocks, NAREIT (real estate securities) and GSCI (commodities), to provide broad generalizations about the rewards of multiple-asset-class investing. In addition to providing this general discussion, Gibson includes sample asset allocations for investors based on risk preferences. However, the discussion concerning these asset allocations is limited, with no explanation, for example, of why investors with a low risk tolerance would include international bonds and commodities as asset classes in their portfolios and what type of returns these portfolios might generate. Without going into more detail about sample recommended portfolios for different investors, or at least more detail about guidelines he would use for choosing asset classes and allocating percentages to them, Gibson falls short of providing a comprehensive tool for investors to use to actually design their own portfolios.
In the end, "Asset Allocation" spends less time giving practical advice about how to allocate assets and instead spends more time explaining the concepts of why asset allocation is important. For readers looking for more practical guidance on how to allocate their assets, "Asset Allocation" may not be the final answer. However, it still provides valuable information in order to get investors to realistically think about the risk and reward of various asset classes and develop an investment philosophy grounded in the basic concepts of controlling costs and diversifying assets. In his classic investing book, "The Four Pillars of Investing," Dr. William Bernstein included "Asset Allocation" on his recommended reading list for investors who are "good with numbers and don’t mind a little effort." Although it lacks the easy accessibility and organization of "The Four Pillars of Investing," "Asset Allocation" provides just as much information, particularly in the various tables and figures, to give investors who are willing to put in the effort a solid foundation on the important topic of asset allocation.
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July 11, 2009Here's a sample sentence to give you a feel for the tone of the book: "Regardless of the time horizon... the risk-mitigating benefits of broad diversification argue for the utilization of multiple asset classes for all clients regardless of volatility tolerance." (303) More technical, mathematical, theoretical, than other books I've read on the topic, but full of great information.
Over 90% of portfolio performance can be explained by asset allocation(!).
The two major risks faced by all investors are inflation and volatility. The advantage of fixed-income investments is lower volatility, but the disadvantage is their inflation susceptibility. Equity investments, conversely, have high volatility but offer real long-term capital growth even in inflationary environments. Hence fixed-income investments are more appropriate for short time horizons while equity investments are more appropriate for long time horizons.
I appreciated the discussion on the "declining marginal utility of wealth"--$1000 given to someone who makes $1 million a year does not mean as much as $1000 given to someone who makes $10000 a year. This is one motivation to lower volatility as one nears financial goals rather than push for continual increase unnecessarily.
Gibson runs a number of computer optimization scenarios to generate portfolios perfectly on the efficient frontier--given the assumed inputs. He showed that varying the inputs only slightly can drastically change the optimal portfolio. Since the inputs are only guesses of what will happen in the future there's a decent chance that a computer optimizer will lead you astray. Fortunately, diversification benefits increase at a diminishing rate--so being halfway to an optimal allocation will garner more than half the benefits of an "optimal" allocation. Close does count.
Over 90% of portfolio performance can be explained by asset allocation(!).
The two major risks faced by all investors are inflation and volatility. The advantage of fixed-income investments is lower volatility, but the disadvantage is their inflation susceptibility. Equity investments, conversely, have high volatility but offer real long-term capital growth even in inflationary environments. Hence fixed-income investments are more appropriate for short time horizons while equity investments are more appropriate for long time horizons.
I appreciated the discussion on the "declining marginal utility of wealth"--$1000 given to someone who makes $1 million a year does not mean as much as $1000 given to someone who makes $10000 a year. This is one motivation to lower volatility as one nears financial goals rather than push for continual increase unnecessarily.
Gibson runs a number of computer optimization scenarios to generate portfolios perfectly on the efficient frontier--given the assumed inputs. He showed that varying the inputs only slightly can drastically change the optimal portfolio. Since the inputs are only guesses of what will happen in the future there's a decent chance that a computer optimizer will lead you astray. Fortunately, diversification benefits increase at a diminishing rate--so being halfway to an optimal allocation will garner more than half the benefits of an "optimal" allocation. Close does count.
March 17, 2009
This is an asset allocation book written by an investment advisor for investment advisors. It's fairly technical, occasionally delving into statistics. It accomplishes what most asset allocation books do, an overview of available asset classes, their historical and expected behaviors, and how they interact with one another in the larger context of a portfolio. But it does this with less organization and readability than most books of its kind. It spends a lot of time discussing issues involved with working with clients. It's inconsistent in its position on money management, occasionally saying it's possible to find talented money managers but provides no direction in finding them. Overall, the book is decent but fairly mediocre.
November 6, 2011
Robert Gibson's book is "The" Asset Allocation book. The author makes clear the value and necessity of well thought out financial asset allocation for long term investment.
Through allocation between non-correlating asset classes you're able to reduce overall volatility and increase portfolio performance.
The book is nearly a text book but fairly enjoyable to read. It speaks primarily to professional financial planners but is still accessible to the average investor.
Through allocation between non-correlating asset classes you're able to reduce overall volatility and increase portfolio performance.
The book is nearly a text book but fairly enjoyable to read. It speaks primarily to professional financial planners but is still accessible to the average investor.
April 20, 2019
Traz toda a explicação de como funciona a diversificação de acordo com a teoria moderna de portfólio. O livro não é complicado ou cheio de cálculos mas, senti que é mais destinado a assessores financeiros do que ao público geral. Também defende a eficiência do mercado mas, ao mesmo tempo, advoga que é preciso ter um assessor ou consultor para auxiliar no gerenciamento do portfólio e que altas taxas são aceitáveis porque os profissionais "agregam valor" ao portfólio. Não achei tão necessário assim para entender alocação de ativos, outros livros abordam o assunto de maneira mais direta.
March 3, 2024
Roger Gibson’s “Asset Allocation” stands the test of time, much like the portfolios he suggests building. I would be interested in reading a sequel that addresses the continued dominance of the S&P, but the analysis and figures Gibson provides in this book give some backbone to the sorts of investment strategies that are commonly recommended on internet forums today. Anyone interested in investing or learning the mechanics behind building a portfolio should read this book, though be prepared to dive into some fairly technical analysis.
June 8, 2019
Rather than mere financial literary, this book is a practical framework to construct portfolios for any time horizon through a methodical asset allocation strategy. Covering aspects from historical performance, volatility, diversification, risk and portfolio design, this is a complete guide for professional financial advisors and an excellent reference for investors to understand decisions related to financial risk.
January 24, 2020
1) выбор активов и их соотношения важнее чем выбор конкретных акций.
2) среднесрочные гос. облигации лучше долгосрочных (доходность почти такая же, а риск меньше).
3) нет корпоративным облигациям (премия за риск невыполнения обязательств в сложных процентах составила 0,5% в год).
4) увеличение расчетной доходности портфеля влечет за собой увеличение волатильности.
5) 4 класса и больше активов дают лучшую доходность и низкую волатильность.
(выгоды диверсификации значительны и ощутимы не только с точки зрения снижения волатильности, но и в плане увеличения доходности).
Акции vs облигации на долгой дистанции:
В этом смысле разумно считать акции крупных компаний долгосрочным «инвестиционным инструментом, индексированным с учетом инфляции. Это вполне объяснимо при реальном долгосрочном росте экономики. История свидетельствует, что акции гораздо более эффективны при **низкои инфляции**, когда существует относительная стабильность потребительских цен.
2) среднесрочные гос. облигации лучше долгосрочных (доходность почти такая же, а риск меньше).
3) нет корпоративным облигациям (премия за риск невыполнения обязательств в сложных процентах составила 0,5% в год).
4) увеличение расчетной доходности портфеля влечет за собой увеличение волатильности.
5) 4 класса и больше активов дают лучшую доходность и низкую волатильность.
(выгоды диверсификации значительны и ощутимы не только с точки зрения снижения волатильности, но и в плане увеличения доходности).
Акции vs облигации на долгой дистанции:
В этом смысле разумно считать акции крупных компаний долгосрочным «инвестиционным инструментом, индексированным с учетом инфляции. Это вполне объяснимо при реальном долгосрочном росте экономики. История свидетельствует, что акции гораздо более эффективны при **низкои инфляции**, когда существует относительная стабильность потребительских цен.
October 27, 2023
Tailored towards financial advisors. Provides strategy and rationale towards certain methods of investing in retirement accounts with an objective in mind vs a risk tolerance. A few nuggets of info for the common investor but overall for a financial advisor.
May 29, 2020
A lot of insights about the mutual funds industry
October 2, 2022
Some useful concepts but can be dry at times
January 14, 2011
Everyone knows diversification is important... but why? This book answers that question using logic and mathematical evidence. Once you see the graph of the efficient set and come to understand it, you will see how powerful diversification really is. Also, this book debunks myths about the ability of market timers and stock gurus. A must read for anyone serious about understanding the "why's" behind his or her retirement.
January 2, 2022
Very insightful
Brick by brick, Gibson breaks down the stereotypes haunting casual investors. Over the course of this book, a humble and attentive reader will gain a deep understanding of the role of portfolio building and the true meaning of such often used buzzwords as “volatility tolerance” and “financial goals”. This book won’t make you rich (only hard work can do that), but it might shield you from costly mistakes you didn’t know you were making.
Brick by brick, Gibson breaks down the stereotypes haunting casual investors. Over the course of this book, a humble and attentive reader will gain a deep understanding of the role of portfolio building and the true meaning of such often used buzzwords as “volatility tolerance” and “financial goals”. This book won’t make you rich (only hard work can do that), but it might shield you from costly mistakes you didn’t know you were making.
April 13, 2009
A good book to learn about modern portfolio theory and standard investment fare. It's easy to read in most places. A bit circular, but it works.
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