The Informed Investor: A Hype-Free Guide to Constructing a Sound Financial Portfolio

Customer Reviews

Most individual investors have no game plan or written investment goals. They may have a lofty goal of obtaining 10 - 20% annual returns over the long-term. Now that we've experienced a significant bear market-which may get worse - the investor needs to sit down and realistically assess his/her financial needs and use a time-tested investing approach.

Armstrong's book offers a systematic approach to understanding the investment scene. He covers long-term trends and returns in the various investment categories from 1926 - 2000 and shows that stocks were the way to go - especially small company stocks. He then provides a 32-page informative discussion on assessing the risk of investing - a subject that many investors don't know too much about. Unfortunately, most investors pay little attention to this vital subject and end up losing their shirts because they don't understand the elements of risk.

Armstrong then covers modern portfolio theory, the efficient frontier, and the overwhelming importance of proper asset allocation (e.g., stocks, bonds, and cash) compared to individual stock selection or market timing. Other topics covered include: whether managers add value (not really), benchmarks, controlling costs and taxes, and some investing horror stories.

Armstrong provides interesting statistics on building a portfolio first with an allocation of 60% in the S&P 500 and 40% in long-term bonds from 1975- 2000. This portfolio provided and annual return of 14.43% with a standard deviation of 11.42%. He then provides different portfolio mixes and ends with a portfolio of investment vehicles that provide an annual return of 14.71% with a standard deviation of 9.09% -- a significant improvement in lowering its riskiness. Armstrong provides guidelines in investing for retirement using a global equity exposure and bonds.

Once the allocation is determined the next step is to actually select the investment vehicles. Here, Armstrong focuses on selecting mutual funds, closed end funds unit investment trusts, REITs, variable annuities, ETFs, and index funds. He points out the differences of using investment advisors or doing it yourself.

There is an appendix with a sample investment policy statement for individuals that can serve as a model for most individuals with appropriate adjustments, as necessary.

In conclusion, Armstrong provides a practical, easy-to-implement asset allocation approach using no-load mutual funds and other vehicles. For individuals that need an advisor, he provides helpful hints in selecting one. The new and average investor will greatly benefit from the wisdom provided in this book.

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