By Richard A. Ferri
Reviewed by Jon Ford, CFP®
Richard Ferri spoke at FPA Seattle 2007, and two books he authored were sold at the FPA bookstore. This review focuses on the book All About Asset Allocation but many of the positive impressions included in this appraisal apply also to Ferri's other title, All About Index Funds. Both are part of McGraw-Hill's "All About..." investment series, both are extremely informative and well researched, and both belong in the working library of every financial planner.
All About Asset Allocation reads smoothly and is coherently progressive from start to finish. Though not very difficult, there are many mathematical concepts and applications. They are applied to explain fundamental models and processes that allow readers to move forward with a particular topic. The book is divided into three parts and 14 chapters, and it helps to read chapters consecutively, since each relies on information presented earlier.
For financial planners who have been building portfolios for awhile, the strategies are as familiar as an old friend with whom you have traveled difficult roads.
Part One: Basics provides descriptions of what it means to have success with investing, understanding investment risk, explaining asset allocation and the importance of multi-asset-class investing.
Part Two: Selection describes how to choose investments and then describes the place of U.S. and international equities, and fixed income, real estate and alternative investments.
Part Three: Managing Your Portfolio describes the importance of realistic market expectations in the context of building a portfolio, and provides cautions against destructive behavioral tendencies and costly expenses.
For many, this book may simply be an articulate review-for others, a refreshing start. The reader will discover clear explanations of the use and importance of bid-ask spreads, yield spreads, correlation analysis, risk-adjusted returns, economic forecasting, personal risk assessment, tax swaps, life stages and portfolio construction, and various commodities. Ferri is quick to praise the contributions of researchers and practitioners that have helped construct the tools and technique of asset allocation. He is equally fervent when cautioning about deceptive sales practices that result in unknown costs which erode client portfolio value and shatter dreams.
The book is peppered with historical, case-study and illustrative diagrams and narrations that lead readers to understanding each topic. His clarity, background and attention to detail are a welcome relief to those of us battered by many of today's cutting edge technically derived, but unproven, forms of portfolio creation. If you are enthralled by the nuts and bolts of fundamental portfolio construction, this is the book for you.
Jon Ford, CFP®, of CF Financial Planning Solutions Inc. in Mesa, Arizona, is a frequent contributor to Between the Issues, and also writes a regular column for the Cedar Falls Timesin Iowa.
McGraw-Hill Publishers: New York (2006)