My good buddy Ames mentioned this book to me. I already held this idea that asset allocations work due to negative correlations, but this book went through all the math I needed to believe it. Perhaps I’m just being bitten by confirmation bias, but I love the Intelligent Asset Allocator. Here are some new takeaways for me.
- Value stocks as an investing dimension. Over time U.S. value stocks generally beat out growth stocks. Growth stocks already have growth priced in. To increase in value they have to hit insane growth goals. Think Tesla vs. Ford. If Tesla doesn’t grow 8000%, they’ll pull down your portfolio in the long run.
- Foreign stocks can win! I’m bumping up my allocation of foreign stocks. This books shows they can and do beat the U.S. over certain time periods. Not holding foreign stocks at all will actually increase the volatility of your portfolio.
- A no bond portfolio earns less? Yep. Turns out that having some bonds will actually increase the total return of your portfolio. 100% stocks won’t outperform 93% stocks and 7% bonds. (Same is true for an all bond portfolio. Some stocks actually add return and stability)
- Fees suck. You already know that fees hurt your return. This book helped give me the motivation to move over that “OK” 401(k) with 1% fees to Vanguard.
If you are managing your own finances, and most of us are, The Intelligent Asset Allocator is a must read. Anyone of the takeaways I have are worth a lot more than $20 bucks, so I consider this money well spent.