Contents
1 Introduction to markets and portfolios
2 What is an edge over the markets and do you have it?
You just have to pick your moment
Should we give our money to Susan and Ability?
You need to pick the best mutual fund out of 10 for it to make sense!
3 What are the key components of the rational portfolio?
Asset split in a rational investment portfolio
Understand the level of risk you are comfortable with
Don’t put all your non-investment eggs in one basket
Reducing tax has a large impact on long-term returns
Paying too much in fees destroys asset growth
4 The minimal risk asset – safe, low-risk returns
Buy government bonds in your base currency if credit quality is high
Perhaps diversify even the potentially very low risk that your domestic government fails
What will the minimal risk bond earn you?
5 World equities – increased risk and return
Buy equities from around the world
The advantage of diversification
Expected returns: no promises, but expect 4–5% after inflation
Understanding the risk you take to get returns
Don’t assume that markets always bounce back
Diversification and the false sense of security
7 Adding other government and corporate bonds
Only add government bonds if they increase expected returns
The government bonds we should add to the rational portfolio
Corporate bond returns also depend on credit quality
Return expectations of the rational portfolio
Adjusting the rational portfolio
Using equity risk insights in the context of a full rational portfolio
The rational portfolio allocations
Special case: if you want a lot of risk
9 What is omitted from your rational portfolio and why
Avoid investments that require an edge or those you already have exposure to
Property – don’t do it unless you have an edge
Private equity, venture capital and hedge funds
Private investments (or ‘angel’ investing)
part 3 Tailoring and implementing the rational portfolio
10 Financial plans and the risks we take
A few ways to think about portfolio allocations
Adding government and corporate bonds
The equity portfolio and ‘risky’ bonds are highly liquid
Getting paid – illiquid investments should generate better returns
Believing in an edge can be expensive
14 Products and implementation
Total expense ratio tells you the cost of owning the product
The best ETFs: liquid, tax efficient and low cost
part 4 Other things to think about
Defined contribution pension plans
How could 2008 and 2009 have happened?
17 A wish list aimed at the financial sector
Enhanced independent comparison sites