An accessible guide that outlines the key elements of an effective financial plan From Larry Swedroe, the author of the bestselling series of "The Only Guide" investment books, with Kevin Grogan and Tiya Lim comes a step-by-step handbook that shows you how to develop a winning personal investment strategy and reveals what it takes to make that strategy part of your overall financial plan. The Only Guide You'll Ever Need for the Right Financial Plan focuses on the "art" of investing and gives you the information you need to create a strategy that is tailor-made for your particular situation.
Designed for savvy investors and professional advisors, this book offers the vital information needed for developing and implementing an overall strategic financial plan. In this essential resource, Swedroe outlines the basics in asset allocation and other investment planning concepts.
- Addresses how you can design an investment policy statement and an individual asset allocation plan
- Examines how to maintain your portfolio's risk profile in the most cost-effective and tax-efficient manner
- Offers insights on integrating risk management and estate planning issues into your plan
The Only Guide You'll Ever Need for the Right Financial Plan offers a handy tool to help you make more informed and prudent decisions that will go a long way to ensure a secure financial future.
Table of Contents:
Preface xv
Acknowledgments xix
Part I: Investment Strategy in an Uncertain World
Chapter 1 The Uncertainty of Investing 3
Efficient Frontier Models 5
Chapter 2 The Investment Policy Statement 9
The Foundation of the Investment Plan 10
Part II: Asset Allocation
Chapter 3 Asset Allocation 17
The Ability, Willingness, and Need to Take Risk 17
When Conflicts Arise 21
Risk Factors 22
Chapter 4 Equities 25
Equities versus Fixed Income 25
U.S. Equity versus International Equity 28
Emerging Markets 30
Value versus Growth 31
Real Estate 34
Your Home 36
Collateralized Commodity Futures (CCF) 36
Socially Responsible Investing (SRI) 39
Chapter 5 Fixed Income 41
Credit Quality 41
Short-Term versus Long-Term Maturities 42
Municipal Bonds 44
Inflation-Protected Securities 44
Short-Term Fixed Income versus TIPS 46
Chapter 6 Alternative Investments 49
Convertible Bonds: Not Recommended 49
Covered Calls: Not Recommended 50
Fixed-Income Currency Exposure: Generally Not Recommended 51
EE Bonds: Recommended 52
Emerging Market Bonds: Not Recommended 52
Equity-Indexed Annuities (EIAs): Not Recommended 53
Gold: Not Recommended 54
Hedge Funds: Not Recommended 54
High-Yield (Junk) Bonds: Not Recommended 56
Leveraged Buyouts (LBOs): Not Recommended 57
Leveraged Funds: Not Recommended 58
Master Limited Partnerships (MLPs): Not Recommended 58
Mortgage-Backed Securities (MBS):Not Recommended 58
Precious Metals Equities (PME):Not Recommended 59
Preferred Stocks: Not Recommended 60
Private Equity (Venture Capital): Not Recommended 61
Stable-Value Funds: Generally Not Recommended 62
Structured Investment Products: Not Recommended 63
Variable Annuities: Not Recommended 64
Chapter 7 Liabilities and Asset Allocation 67
Mortgages 67
Prepay the Mortgage or Increase Tax-Advantaged Savings? 69
Other Liabilities 70
Part III: Implementing the Plan
Chapter 8 Individual Securities or Mutual Funds 73
Convenience 73
Diversification 74
Size Matters 76
Advantages of Individual Securities 76
Separate Account Managers 77
A Word of Caution 78
Summary 78
Chapter 9 Active versus Passive Management 81
The Evidence 82
The Search for the Holy Grail: Why Is Persistent Outperformance So Hard to Find? 85
The Value of Economic Forecasts 87
The Value of Security Analysis 88
Buy, Sell, or Hold? 89
The Tyrannical Nature of an Efficient Market 89
The Prudent Investor Rule 90
The Benefits of Passive Investing 91
Summary 92
Chapter 10 The Asset Location Decision 95
Exceptions 96
Order of Preference 97
Additional Considerations 97
Advanced Concept 99
Balanced and Lifestyle Funds 99
Chapter 11 The Care and Maintenance of the Portfolio 101
Rebalancing 101
Tax Management Strategies 104
Final Considerations 110
Part IV: The Investment Plan and Financial Security
Chapter 12 College Savings Plans 113
529 Plans 113
Coverdell Education Savings Accounts 115
Custodial Accounts 116
U.S. Savings Bonds 117
Financial Aid Impact 118
Chapter 13 Insurance 121
Risk Management 122
Payout Annuities 124
Long-Term Care Insurance (LTCI) 127
Life Settlements 130
Chapter 14 IRAs and Retirement/Profit Sharing Plans 135
Roth versus Traditional IRA 135
Five Key Facts 136
What to Do When Retirement Plan Choices Are Poor 141
IRA Conversions 143
Chapter 15 Social Security 149
Is Social Security a Balance-Sheet Asset? 152
Double Dipping Strategy 155
Chapter 16 Determining a Safe Withdrawal Rate 157
Monte Carlo (MC) Simulations 158
In the Absence of an MC Simulator 160
The Sequencing of Withdrawals to Fund Retirement 163
Chapter 17 Planning Beyond Your Lifetime 167
Estate Planning 167
Preparing Your Heirs 168
Conclusion 173
Appendix A Effective Diversification in a Three-Factor World 175
Appendix B Dollar Cost Averaging 181
Appendix C Reverse Mortgages 185
Appendix D How to Choose an Adviser You Can Trust 191
Notes 193
Glossary 197
Index 213
