Book Review: All About Asset Allocation by Richard Ferri

After reading William Bernstein’s Intelligent Asset Allocator somebody suggested I check out Richard Ferri’s book All About Asset Allocation and I’m glad I did.  Ferri has a knack for making even the most complex investing concepts easy to understand, even for relative novices, but that’s not to say there’s nothing here for the advanced investor.  In fact, I learned quite a bit about the nature of volatility and diversification I never knew before. 

A Complete Education

Richard Ferri isn’t just some ivory-tower economist or financial writer, he’s actually a Certified Financial Analyst and runs his own investment management firm, Portfolio Solutions.  Because of this experience, he seems to have an intuitive sense for what exactly is important to investors and what troubles them most.  For this book, Ferri focuses almost exclusively on what really matters:  asset allocation.  Asset allocation, as we know, is by far the most important investment decision you will ever make.  Everything else, from mutual fund selection to asset location to tax issues, is secondary to that. 

In All About Asset Allocation, Ferri expertly walks you through the process of determining the proper asset allocation from start to finish, starting with perhaps the simplest and most elegant overview of the basics of diversification and investment risk I have ever read.  Like other books on asset allocation, Ferri gives a detailed overview of each of the major asset classes and investing styles but what he does better than most, I think, is explain how they all fit together in the context of an overall portfolio.  Too many financial writers, it seems, nerd out in these chapters and fill their pages with obscure information that, while interesting to enthusiasts, won’t really help you answer the question you bought the book for in the first place:  what’s the best way to allocate my portfolio?  Ferri never loses sight of this question.

The Recommended Portfolios

No book on asset allocation would be complete without a chapter on recommended portfolios.  What separates this book from others is that Ferri takes into account that people have different risk tolerances and needs.  Instead of simply saying “investors in their 20’s should have 85% of their portfolio in stocks” he gives a range of possible allocations ranging from 85-55% in equities depending on your tolerance for risk.  I think this is actually the responsible way to go about it because investing beyond your risk tolerance is a recipe for disaster.

One Of My Favorite New Investing Books

All About Asset Allocation is now one of my favorite investment books.  One of the primary flaws in other books of this nature, which I’ve mentioned before in my review of Intelligent Asset Allocator, is they tend to get bogged down in the math and technical aspects, making them inaccessible to beginners.  In reality, diversification isn’t all that complicated and shouldn’t be portrayed as such.  Ferri tells you all you really need to know to make the important decisions in just a few pages without compromising on the important details.  I still find myself breaking out my copy occassionally to look up some detail I want to write about on this blog.  Overall, this is a book I would recommend to anybody wanting to gain a relatively advanced understanding  of the topic.  If you read this book and only this book, I think you would be relatively well-prepared to competently handle your own portfolio in all manner of market conditions, which I think is the highest praise I could possibly give.

Buy All About Asset Allocation by Richard Ferri from Amazon.