Asset Allocation For Dummies

363 Pages·2009·5.88 MB·English

by  Dorianne Perrucci

Spine: 0.72”
Business/Personal Finance/Investing
Making Everything Easier!™
Use allocation strategies
of the pros and protect A s s e t
your financial future
Open the book and find: A
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assets successfully. This plain-English guide demystifies s n
(cid:127) How to match the right a t i o
the process, giving you timely advice on diversifying your investments with the right e A l l o c
investment portfolio to help insulate it against volatility. accounts
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You’ll see how to develop your personal investment
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strategy, avoid costly mistakes, and rebalance to generate
(cid:127) B est practices for portfolio
extra return.
rebalancing l
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(cid:127) The ABCs of asset allocation — discover how it works, why to do o
(cid:127) “ What if?” investment scenarios
it, and the level of risk you’re comfortable with
(cid:127) Historical rates of return on ten c
(cid:127) Explore the different asset categories — from cash and bonds to
stocks, mutual funds, exchange-traded funds, and more asset classes and subclasses a
(cid:127) How to project your financial
(cid:127) Plan your investment strategy — set your portfolio constraints, t
future
outline your financial goals, and select your asset classes i
o
(cid:127) G uidance for fine-tuning your
(cid:127) Choose securities and accounts — select the best ones,
long-term allocation plan
understand fees and expenses, and take advantage of tax breaks n
(cid:127) Maintain your portfolio — keep tabs on your investments,
know when to rebalance, and measure your results against
appropriate market benchmarks
Learn to:
(cid:127) Go beyond the basics — consider alternative investments (such
as real estate and commodities), maximize after-tax results, and Go to dummies.com® (cid:127) Use allocation strategies that best serve
work with the pros when you need help
for more! your goals
(cid:127) Balance and rebalance your portfolio
(cid:127) Maximize returns and minimize risk
$24.99 US / $29.99 CN / £16.99 UK Jerry A. Miccolis,
Jerry A. Miccolis, CFA, CFP, FCAS, MAAA, is a financial advisor, widely ISBN 978-0-470-40963-3 CFA, CFP, FCAS, MAAA
quoted financial author, and expert commentator who has appeared on
Senior financial advisor and co-owner,
CBS Radio and ABC-TV. Dorianne R. Perrucci is a freelance writer who
Brinton Eaton Wealth Advisors
has been published in The New York Times, Newsweek, and TheStreet.com,
Dorianne R. Perrucci
and has collaborated on several investing books, including I.O.U.S.A., One Miccolis
Nation, Under Stress, In Debt (Wiley, 2008). Perrucci Financial author and editor
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Asset Allocation
FOR
DUMmIES
‰
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Asset Allocation
FOR
DUMmIES
‰
by Jerry A. Miccolis, CFA®, CFP®, FCAS, MAAA
Brinton Eaton Wealth Advisors
and Dorianne R. Perrucci
Financial writer
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Asset Allocation For Dummies®
Published by
Wiley Publishing, Inc.
111 River St.
Hoboken, NJ 07030-5774
www.wiley.com
Copyright © 2009 by Wiley Publishing, Inc., Indianapolis, Indiana
Published simultaneously in Canada
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Library of Congress Control Number: 2009925030
ISBN: 978-0-470-40963-3
Manufactured in the United States of America
10 9 8 7 6 5 4 3 2 1
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About the Authors
Jerry A. Miccolis: Jerry’s clients, colleagues, and friends were caught a
bit off-guard when, in 2003, he decided to change careers, from enterprise
risk management to personal wealth management. But, toward the end of
his 30-year stint in the actuarial and risk-management fi elds (including 25
years with the international management consulting fi rm Towers Perrin,
where he eventually led the global enterprise risk management practice),
he had already nearly achieved the two most sought-after certifi cations of
his chosen second career — Chartered Financial Analyst (CFA) and Certifi ed
Financial Planner (CFP). He’s never been happier, helping real people secure
their fi nancial future. A senior fi nancial advisor at, and co-owner of, Brinton
Eaton Wealth Advisors in Madison, New Jersey, Jerry adds his CFA and CFP
designations to his credentials as a fellow of the Casualty Actuarial Society
(FCAS) and member of the American Academy of Actuaries (MAAA). Jerry,
who is also a member of the Financial Planning Association (FPA) and the
New York Society of Security Analysts (NYSSA), holds a BS in mathematics
from Drexel University.
The coauthor of Enterprise Risk Management: Trends and Emerging Practices
(The Institute of Internal Auditors Research Foundation) and Enterprise Risk
Management: An Analytic Approach (Tillinghast-Towers Perrin), Jerry has
chaired numerous professional committees and is a widely quoted author
and speaker on the subject of strategic risk management, investment
management, and their interrelationship. Jerry has been published in profes-
sional journals (Strategy & Leadership, Operational Risk, Risk Management,
Institutional Investor, CFO Magazine, Investment Advisor, and Financial
Planning) and in the mainstream media (The New York Times, The Wall Street
Journal, The Baltimore Sun, MarketWatch, MSN Money, and Marketwire). He
has appeared as an expert commentator on CBS Radio, ABC TV, and IRMI.
com, the Web site of the International Risk Management Institute.
All of this, though, is what Jerry does between senior softball games, his real
passion. There, Jerry plays third base and shortstop and bats much lower in
the lineup than he thinks he should.
You can read more of his and his colleagues’ investment advice at www.
brintoneaton.com (click Research Corner) and about his softball addiction at
www.casact.org/newsletter/index.cfm?fa=viewart&id=5639.
Jerry A. Miccolis, CFA, CFP, FCAS, is a principal of Brinton Eaton Associates,
Inc., d/b/a Brinton Eaton Wealth Advisors, an investment adviser registered
with the United States Securities and Exchange Commission. No reader
should assume that the book content serves as the receipt of, or a substitute
for, personalized advice from Mr. Miccolis, from Brinton Eaton Associates,
Inc., or from any other investment professional. Please remember that
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different types of investments involve varying degrees of risk. Therefore, it
should not be assumed that future performance of any specifi c investment or
investment strategy (including the investments and/or investment strategies
referenced in this book) will be profi table.
Dorianne R. Perrucci: Dorianne jokes that she’s still looking for the 13¢
that caused her fi rst checking account to bounce. Dorianne, who has writ-
ten for Newsweek, The New York Times, Mediaweek, and TheStreet.com,
began reporting about personal fi nance and investing in 1998 for Jane Bryant
Quinn’s Washington Post column. Previously, she reported for a daily news-
paper, wrote a political column for a U.S. senator, and produced articles
and books for several of the country’s leading charities, including Covenant
House, the Times Square shelter for homeless and runaway youth. She cur-
rently edits and collaborates on investing books, including: The Demise of the
Dollar . . . and Why It’s Great for Your Investments, by Addison Wiggin (Wiley
Publishing); I.O.U.S.A., One Nation, Under Stress, In Debt, with Addison Wiggin
and Kate Incontrera (Wiley Publishing); The Ultimate Depression Survival
Guide, by Martin D. Weiss (Wiley Publishing); and the AARP Crash Course in
Creating Retirement Income, by Julie Jason (Sterling Publishing).
Dorianne, a graduate of Marquette University’s School of Journalism, is a
member of the American Society of Journalists and Authors and the New York
Financial Writers Association. When she isn’t busy explaining the consumer’s
next investment challenge, she continues to search for that missing 13¢.
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Dedication
To you, the average investor, who is curious enough to wonder if a For
Dummies book can really help you get superior investment results, like the
pros. Asset allocation, which begins with determining the right (and the
right-size) baskets for your investment “eggs,” isn’t exactly a piece of cake,
but we promise, if you’re determined to learn the recipe, we’ll make the pro-
cess a very satisfying one for you.
Acknowledgments
It takes a village to write a book. Okay, not original, but true — you need a
tribe of supporters to make it safely to the “effi cient frontier” of investing.
Jerry Miccolis thanks his coauthor, Dorianne, for her contagious enthusiasm
and offbeat sense of humor — and for constantly nagging him to “Keep
it accessible!” Numerous editorial suggestions from his Brinton Eaton
colleagues — Bob DiQuollo, Ben Jacoby, Jeremy Welther, Jerv Brinton, Nick
Laverghetta, Ellen Clawans, and Abby Scandlen — vastly improved the fi nal
manuscript. Special mention to Marina Goodman, who seemed to take
particular pleasure in offering blistering critiques of early drafts but also
made excellent original contributions and helped prepare many of the
exhibits and examples. They and the rest of the staff — Colleen Betzler, Dave
Hill, Eric Mancini, Doris Merrick, Adrian Fedorkiw, Kim Dibenedetto, and
Pam Trunfi o — graciously picked up the slack for Jerry at the offi ce. Most
important, Jerry thanks Marcella, his wife and muse, for her unfailing
support, encouragement, and understanding, during the nights and weekends
he devoted to this book.
Dorianne Perrucci thanks Jerry, for his patience in explaining technical
jargon and would like to ask him to explain perfect negative correlation one
more time. She thanks her agent, Marilyn Allen, and the entire amazing For
Dummies team, especially Acquisitions Editor Stacy Kennedy, who actually
wanted to publish a book on asset allocation; Elizabeth Kuball, project editor
extraordinaire; and Dummifi er Brittain Phillips, whose mysterious ability to
rework text works wonders. Dorianne is also grateful for her family and a
host of colleagues and friends for continuing to cheer her on.
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Publisher’s Acknowledgments
We’re proud of this book; please send us your comments through our Dummies online registration
form located at http://dummies.custhelp.com. For other comments, please contact our
Customer Care Department within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993, or fax
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Some of the people who helped bring this book to market include the following:
Acquisitions, Editorial, and Media Composition Services
Development
Project Coordinator: Kristie Rees
Project Editor: Elizabeth Kuball
Layout and Graphics: Carrie A. Cesavice,
Acquisitions Editor: Stacy Kennedy Reuben W. Davis, Melissa K. Smith,
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Copy Editor: Elizabeth Kuball
Proofreaders: Melissa Cossell,
Assistant Editor: Erin Calligan Mooney
Jessica Kramer, Broccoli Information
Editorial Program Coordinator: Joe Niesen Management
Technical Editor: Indexer: Potomac Indexing, LLC
Louis J. Schwarz, QFP, CFP, RFC
Special Help: Brittain Phillips
Senior Editorial Manager: Jennifer Ehrlich
Editorial Supervisor and Reprint Editor:
Carmen Krikorian
Editorial Assistants: Jennette ElNaggar,
David Lutton
Cover Photos: © Yiap Lightbox/Alamy
Cartoons: Rich Tennant
(www.the5thwave.com)
Publishing and Editorial for Consumer Dummies
Diane Graves Steele, Vice President and Publisher, Consumer Dummies
Kristin Ferguson-Wagstaffe, Product Development Director, Consumer Dummies
Ensley Eikenburg, Associate Publisher, Travel
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Publishing for Technology Dummies
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Composition Services
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