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McGraw-Hill Professional Publishing
The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk / Edition 1

The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk / Edition 1

by William J. Bernstein


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The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk / Edition 1

Profit through good times and bad with a resilient, diversified portfolio

The Intelligent Asset Allocator has helped thousands of people like you build wealth through carefully diversified portfolios. Now, with global markets in constant flux, balancing risk and reward is more critical than ever.

Self-taught investor William Bernstein offers no gimmicks, inside secrets, or magic solutions—just the facts about investing and calm, smart advice on how to build and manage a portfolio designed for the long run. This is all you need, despite claims of the advisors and pundits looking to profit from your hard-earned money. This easy-to-understand guide provides everything you need, including:

* The basics of finance—historical, psychological, and institutional
* Time-tested strategies for improving the risk/reward ratio
* Ways to sharpen your focus to improve portfolio management

Bernstein walks you through the fundamentals of important topics like multiple-asset portfolios, optimal asset allocations, market efficiency, and strategy implementation.

No one knows the future of markets. Your forecast is as good as that of the last financial pundit you saw on TV. Trust your instincts, trust your research, and trust the proven-effect approach of The Intelligent Asset Allocator, and your portfolio will deliver returns through the blue skies and storms of financial markets.

Product Details

ISBN-13: 9780071362368
Publisher: McGraw-Hill Professional Publishing
Publication date: 09/22/2000
Pages: 224
Sales rank: 542,310
Product dimensions: 6.20(w) x 9.30(h) x 0.90(d)

About the Author

William Bernstein, Ph.D, M.D., is a retired neurologist and co-principal at the money management firm Efficient Frontier Advisors. He has written for The Wall Street Journal and Money, and was the 2017 recipient of the CFA Institute’s James R. Vertin Award for his body of financial publications.

Read an Excerpt

1: General Considerations

Imagine that you work for your rich but eccentric Uncle Fred. He is a conscientious and kind employer, and after you have spent some years in his service he decides to let you in on the company pension plan. You are 30 years old and will work for your uncle until you retire in 35 years at age 65. Each year he will contribute $5000 to your retirement account. Further, you must pick ahead of time one of two investment choices for the duration of your employment:

Option 1. Certificates of deposit with a 3% annualized rate of return.

Option 2. A most peculiar option: At the end of each year Uncle Fred flips a coin. Heads you receive a 30% investment return for that year, tails a minus 10% (loss) for the year. This option will be referred to as "Uncle Fred's coin toss," or simply, the "coin toss."

The first choice gives you a fixed rate of return and, in fact, an absolutely certain lump sum at the end of your 35 years. You are adept with a financial calculator, and in a few seconds you determine that this option will yield a sum of $302,310 with which to support your golden years. You realize that inflation will diminish the future value of this princely sum. In fact, if inflation is also 3%, you will be left with only $107,436 of current spending power.

The second choice confuses you at first. The thought of losing 10% of your hard-earned retirement money with the toss of a coin is too much to bear. What if you have a string of losing years? If you get tails all 35 years, you could be left with only a pittance for your retirement. On the other hand, if you get heads all 35 years you know that you will bankrupt poorUncle Fred with your gains-he will owe you $162,000,000!

Let's look a bit more closely at the second choice. Over a long enough period, you will get exactly half heads and half tails. If you represent this with an alternating series of heads and tails, then your return in each two-year period is represented by:

1.3 X .9 = 1.17

The first year return of 30% results in your account being multiplied by 1.3, while a 10% loss multiplies your sum by 0.9. For each dollar you had at the beginning of the two-year period, you now have $1.17.

You again get out your calculator and find that a 17% return at the end of two years is the same as an annual return of 8.17%. This is clearly superior to the 3% return of the first option. Of course, you could have a string of bad luck and get tails more than half of the time. However, with some trial and error on your calculator, you discover that you would have to get 12 heads and 23 tails before you come out worse than the first option, and you decide that the odds of this are quite low. You visit your former college statistics professor, who chides you for forgetting that you could have easily calculated the odds of any combination of coin flips with the so-called binomial distribution function. Your blank look elicits a sigh from him, he heads over to his computer, pulls up a spreadsheet program, and after a few keystrokes hands you the graph in Figure 1-1. What are the odds that you will flip less than 13 heads and come out behind? Less than 5%. Actually, this is a bit of an oversimplification. The order of the coin tosses matters a great deal. If you toss 16 straight heads then 19 straight tails you will still come out behind, but if you toss 27 straight tails followed by 8 straight heads you will actually come out ahead. However, these are extremely unlikely events, and the preceding formulation and the graph in Figure 1-1 are an accurate representation of the odds in your favor.

The coin toss also introduces the difference between the average and the annualized return of an asset. Some of you may wonder why the return of the coin toss is not 10% instead of 8.17%, since the average of + 30% and -10% is + 10% (30 minus 10, divided by 2). The average return is simply the average of each of the individual annual returns. The annualized return is a more subtle concept. It is the return that you must earn each and every year to equal the result of your series of differing annual returns. If you own a stock which doubles (has a 100% return) the first year and then loses 50% the next year you have a zero annualized return. If the stock was worth $10 per share at the start, it was worth $20 at the end of the first year, and $10 again at the end of the second year, You have made no money, and yet the average return is a so-called 25% (the average of +100% and -50%). Your annualizes' return is zero. The annualized and average return clearly are not the same. The coin toss has an average return of 10% and an annualized return of 8.17%. The annualized return is always less than the average return. If in the coin toss you come up with half -10% and half +30% returns, this is the same as having an 8.17% return each and every year. You pay your bills with annualized return, not average return. This is why annualized returns are so important...

Table of Contents

Introduction: Where Are We?

Everything You Need to Know About Public Speaking


1: Leadership Communications: The Secret Weapon

2: Becoming a Player

3: First, Understand Your Audience

4: Alpha Dogs and Worker Bees

5: Avoiding Dangerous Traps


6: Get It Together

7: Designing the Perfect Presentation: The POWER Formula

8: The Strong Start

9: Forging a Powerful Message

10: Talking with Pictures

11: The Conversational Approach

12: The Strong Finish

13: Getting the Message Across


14: The 18-Minute Wall: Audience Attention Span

15: How to Capture Your Audience

16: The PowerPoint Paradox: Designing Visual Aids to Work for You—Never Against You

17: How to Make a Powerful Deck Presentation: Going by the Book

18: Write Like You Speak: Ten Important Rules to Live By

19: The Six Most Common Language Mistakes

20: How to Beat Fear

21: Keep the Momentum Going

22: The Power of Silence

23: Body Language

24: How to Dress

25: How to Read a Prepared Text Like a Pro (and Not Look Like You're Reading)I

26: How to Use Teleprompters

27: Taking a Cue from Stage Monitor


28: The Art of Q & A

29: Dealing with the Media

30: Handling Hecklers

31: Train Yourself

32: What's It All Worth to You?

Test Your New Articulate Executive IQ


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