Customer Reviews

The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk

5 star:		(25)
4 star:		(4)
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This book makes a compelling case for an approach to investing that won't get your adrenalin running, but will probably make (or save) you more money than any other approach over the long run. Bernstein builds on academic financial theory and historical analysis to argue that you should (a) diversify your portfolio between stocks and bonds, (b) use low cost index (mutual) funds for the stock portion of your portfolio, and (c) rebalance your portfolio periodically to keep your assets in line with your target allocations. And let's be honest - Bernstein is completely correct. If you'd followed his advice, you wouldn't have been caught with a portfolio of tech stocks at the height of the bubble...

But Bernstein's book has one glaring failing. In the last year, the tools have become available for individual investors to pursue exactly the strategy Bernstein advocates with great ease at exceptionally low cost. But Bernstein hardly discusses these tools, and fails to acknowledge their advantages.

These tools are Exchange Traded Funds (ETFs). If you look at Barclays I-shares (there's a web site devoted to them), for example, you'll find a complete set of exchange traded index funds covering US and foreign markets, individual sectors, and divisions of the market by market cap and style (such as small cap/large cap, growth/value).

ETFs offer compelling advantages to individual investors. They are:
(1) ETFs have lower expense ratios than mutual funds. The Barclays I-shares S&P 500 ETF charges 0.09% a year in fees, compared to about double that for the Vanguard 500 Index Fund.
(2) ETFs are easier to manage from a tax perspective. Don't think this is trivial - it will probably have an immense impact on your after-tax performance. Because ETFs trade like stocks, online brokers ...will show you which lots you have unrealized capital losses on. So at the end of each year you can sell your S&P 500 ETF, realize a capital loss, and put the money into a combination of the S&P 500 Growth ETF and the S&P 500 Value ETF - which amounts to the same thing but allows you to claim up to a $3000 deduction off your tax return. Mutual funds make it much harder if not impossible to track gains and losses and specify individual tax lots for sale.
(3) You can use limit orders on ETFs, which you cannot for mutual funds. Don't think this is an advertisement for day trading - it's not. Following Bernstein's model, you want to trim your asset allocation if one asset rises steeply in price ahead of the rest of your portfolio. Setting Good 'till Cancel limit orders is a great way to keep your portfolio in balance, and to benefit from sharp intra-day movements.
(4) Some of the best online brokers offer portfolio analysis tools that allow you to track your portfolio allocation easily if you keep all your assets in a single account. Since ETFs look like stocks (including the bond index ETFs), it's easy to keep all your assets in a single account. For example, [there is one ETF], which has a bank as well as a brokerage under one roof, allows you to move funds instantaneously between a high interest bearing money market bank account (currently paying about 2.4%) and a brokerage account. This allows you to keep your cash, stock and bond allocations under a single roof, to monitor your total asset allocation, and to move assets from one class to another with ease. In contrast, if you hold multiple mutual fund and savings accounts, it's harder to track your asset allocation and to move funds between asset classes.

The downside of ETFs, compared to mutual funds, is the cost of trading. Online brokerages now charge a [fee for each] trade (ETFs trade just like stocks), so if you rebalance frequently and your assets are not large, you'll want to monitor your trading costs carefully. It may even make sense to use mutual funds instead (you don't pay for buying and selling no-load mutual funds). But for most individuals, I believe that ETFs will prove more profitable than mutual funds, mainly due to the greater ease of tax management and lower expense ratios.

So a discussion of ETFs and a model portfolio using them is the final - missing - chapter of this book. Go read the book anyway - it's a great book. But until Bernstein updates his book, this review - and the free online material at ABetterWayToInvest.com - will have to stand in for that final, missing chapter.

When you pick up this book and look through it the graphs my scare you. Don't let your math phobia kick in. William Bernstein does a great job of walking you through each chapter. In fact at the end of one of the first chapters he tells you to put the book down for a few days and just digest the information. I would rate myself as at least an investor with moderate investing knowledge. I found this book helpful and the charts held validate the points Mr. Bernstein is making. I suspect I will refer to it often when I have a guestion about investing.

Bernstein has become a guru to a peculiarly '90s group: well-educated, Internet-powered people intent on investing well-and with minimal 'help' from professional Wall Street

I am happy I bought it. Although a difficult read for the non math-inclined, it has interesting information explained from a statistical point of view. It actually confirms things that I noticed myself along the years, so it did not change my view of investing, just reinforced it. However, it helped me explain some of the things I couldn't understand.
Recommended read.

Clear and concise. No bloat or pretension. Yet covers loads of essential theory. Read it carefully and you will have a good solid foundation in asset allocation theory.

And not a nostrum. Bernstein does not promise the sky. He states candidly that implementing asset allocation is hard, and keeping the faith even harder. But the rewards are proven.

In a nutshell, read this book to understand asset allocation and indexing, and how they can free you from the endless cycle of financial pundit BS: I recommend fund X because it has shown top-drawer returns for the last two years, and manager Y is a genius, blah blah blah. Right. Like anybody can predict the future from the past. And in fact, Bernstein shows how and why top-performing funds have an alarming tendency to slip and become poor performers. If you have more than a few years investment experience you know in your bones that indexing is the sane alternative. Bernstein has the stats to prove it--as if you haven't already seen articles galore stating the same. This book has pushed me over the edge. Indexing, c'est moi... Allocated across the globe.

I intend to read Burton Malkiel next.

I don't know why anyone would complain about the math used in this book. Apparently it posed a problem for some readers. What is investing but an elaborate application of math combined with money? In any case, the math was kept to a minimum and it touched on vital issues like Standard Deviate.
I have fully applied the principles in this book.

Exceptional book. Anyone serious about investing for the longterm should read it carefully.

This is quite simply the best investment book I have read in a very long time. I don't completely agree with every last word the author utters but that pales beside all that the book does right. The emphasis is in all the right places: mutual fund investment costs, mutual fund investment risk, investment risk period, asset allocation, index funds vs actively managed funds, the efficient frontier, allocation strategy implementation. Best of all the book makes sense. It is logical, well thought out and mature. This is a great book for novices and experienced investors who have gotten lost and is a breath of fresh air in a world of day traders. This book is NOT shallow. It gives me great pleasure to give this book five stars. Read it and use it. You won't be sorry.

There is nothing in this book with which I disagree. My only criticism has to do with readability, an admittedly subjective quality. I read this book after finishing "Four Pillars", and I have to say that the latter is a better written book. If you are into mathematical proof of the principles of index investing, asset allocation and rebalancing, and have a long-term investment horizon, this book is a gem. As a ten year convert to this investing style, I have to say with gratitude that I am glad that I was enlightened when I was. People like Bernstein, Bogle, Malkiel and Swedroe have democratized the investment world to all our benefit.

You can make a lot of money in the stock market. You can also lose a lot of money; this book explores modern thinking about the tradeoffs that determine risk and return in investing. Starting from the premise that statistical analysis provides the tools needed to evaluate risk, the author proceeds from there to present analyses based on modern research in economics and finance.

The average investor may not like the authors premise, since it surmises that markets are reasonably efficient in pricing asssets and that the average investor faces very daunting odds when trying to outperform the market. The analyses fly in the face of most popularly available investing advice, which dwells on predicting trends, picking stocks and market timing. Most investors believe that they can predict the market to some degree (see Bernstein's "Four Pillars" book on overconfidence, or one of the previous reviewers), but Bernstein contends that the market performs in surprising ways that prevent the prediction of returns over short periods.

The evidence for this unpredictability, provided in this and the author's other works (The "Pillars" book and his web site, The Efficient Frontier) is compelling. How much risk does the investor endure while modeling the market based on previous performance? Some aspects of risk and return for broadly defined asset classes are quantifiable, and these quantitations are discussed in the present volume.

My criticisms are minor; I think the author foreshadows the text's math difficulty way too much (most of the public is math averse, I hear). You might read the "Pillars" book first if you are uncertain of your math skills ... anyone familiar with topics like covariance and autocorrellation will breeze through the math in this book. The disclaimer (after some buildup) of MVO backtesting in the middle of the book is a bit of a letdown, but the allocation strategies in the "Pillars" book undo that to some degree. Otherwise, an enthusiastic recommendation. I recommend that every investor read this or the "Pillars" book and apply these ideas carefully and objectively to their own investment strategy.