7Twelve E-Book

Craig L. Israelsen

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 205

Veröffentlichungsjahr: 2010

Beschreibung

A proven way to put together a portfolio that enhances performance and reduces risk Professor Craig Israelsen of Brigham Young University is an important voice in the area of asset allocation. The reason? He keeps things simple. Now, in 7Twelve, he shows you how to do the same, and demonstrates how his approach to investing can help you grow your money as well as protect it. 7Twelve outlines a multi-asset balanced portfolio that is a logical starting point when assembling a portfolio-either as the blueprint for the entire portfolio or as a significant building block. Page by page, he will show you how to create a balanced portfolio utilizing multiple asset classes to enhance performance and reduce risk. * Discusses how the 7Twelve portfolio includes seven core asset classes and utilizes twelve specific mutual funds or exchange traded funds * Details the tax efficiency of this specific investment approach * Shows you how to use the 7Twelve portfolio as a pre-retirement accumulation portfolio or a post-retirement distribution portfolio If you want to build a well-balanced, multi-asset portfolio, 7Twelve is the book for you.

Leseprobe

Table of Contents

Title Page

Copyright Page

Dedication

Foreword

PREFACE

Author’s Disclaimer

Acknowledgments

Epigraph

CHAPTER 1 - A RECIPE FOR SUCCESS

The 7Twelve Recipe

Salsa Anyone?

U.S. Stock

Non-U.S. Stock

Real Estate

Resources

U.S. Bonds

Non-U.S. Bonds

Cash

The Complete Recipe

CHAPTER 2 - LINING UP THE INGREDIENTS

A Recipe That Goes Waaay Back

Getting Better and Better

CHAPTER 3 - THE MORE INGREDIENTS, THE BETTER

Measuring Volatility and Risk

Diversification by Design

Diversification Requires Depth and Breadth

CHAPTER 4 - GROWTH OF MONEY

Why Measure Growth of Money?

Expect Ups and Downs

CHAPTER 5 - COMBINING INGREDIENTS THAT ZIG AND ZAG

Getting Close to Zero

Finding Assets That Play Nicely Together

Don’t Forget Broad Diversification

Quantifying Correlation

CHAPTER 6 - STIRRING THE MIX

Rebalancing versus Buy-and-Hold

Choosing a Schedule

CHAPTER 7 - ADJUSTING THE SECRET SAUCE

The Saving Years and the Spending Years

How Portfolio Mechanics Change in the Golden Years

Allocation Age versus Chronological Age

Life Stage Portfolios

CHAPTER 8 - HOW LONG WILL MY NEST EGG LAST?

Survival of the Fittest

Reviewing the Nest Egg Guidelines

CHAPTER 9 - SHOULD I TILT TOWARD VALUE OR GROWTH?

Does It Make a Difference?

The 7Twelve’s Value Bias

CHAPTER 10 - SHOULD I JUMP IN OR LET THE POT SIMMER?

To Stir or Not to Stir?

The 7Twelve Works Both Ways

But If You Still Can’t Decide . . .

CHAPTER 11 - A BETTER 401(K)

Switching the Default

Introducing Target Date Funds and Balanced Funds

The 7Twelve Portfolio Approach

Determining Your Lifecycle Phase

Mismatch 101

CHAPTER 12 - THE PROBLEM OF UNDERSAVING

Chasing Returns Is a Loser’s Game

Add Plenty of Patience, Perspective, and Persistence

CHAPTER 13 - OF STOCKS, BONDS, AND RISK

A Tale of Two Time Frames

The “Diversification” Premium

CHAPTER 14 - ASSEMBLING YOUR PORTFOLIO

ABOUT THE AUTHOR

INDEX

Copyright © 2010 by Craig L. Israelsen. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

7Twelve™ is a trademark of Craig L. Israelsen

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Library of Congress Cataloging-in-Publication Data

Israelsen, Craig L.

7twelve : a diversified investment portfolio with a plan / Craig L. Israelsen.

p. cm.

Includes index.

ISBN 978-0-470-60527-1 (cloth); 978-0-470-64985-5 (ebk); 978-0-470-64986-2 (ebk); 978-0-470-64987-9 (ebk)

1. Portfolio management. 2. Investments. I. Title. II. Title: 7 twelve. III. Title: Seven twelve.

HG4529.5.187 2010

332.6—dc22 2010004724

Building rockets is complex. Building a diversified portfolio shouldn’t be. This book isn’t about rockets.

FOREWORD

I first encountered Craig Israelsen’s work on portfolio construction—that is, how to combine investments effectively and systematically so that your assets will grow over time—in 2005, when I became the editor in chief of Financial Planning magazine. At first, I found his efforts mystifying—he took a deep, deep dive into decades of performance data, sliced it up, and found patterns I had never encountered. Then, he described what he found in simple English—no flights of calculus or abstruse concepts to make him seem too smart to be questioned. At first, it seemed too simple to me to be as rigorous as it really is.

After a few months, I came to realize that Craig’s ideas, like so many great thoughts, seem simple just because they are true. Like many deep insights, his are the kind that make you say to yourself, “Of course—why didn’t I think of that before.” And after years of intense conversations about the ins and outs of portfolio construction, and invigorating exchanges of research ideas, I am delighted to say that Craig is one of those rare souls who can create intellectual elegance out of chaotic and sometimes contradictory facts. This is what makes his work appear to be so simple, and what makes learning from him such a pleasure.

Which brings me to the subject of this book, 7Twelve, a collection of investments that can dependably build wealth for an investor’s entire life. I think of this portfolio as the culmination of Craig’s research. He has taken the many varied techniques of portfolio construction and distilled them into a reasonable, workable system that any individual can execute, either on his or her own or with the help of a financial advisor. Once again, the ease of this system is deceptive, as it integrates the most contemporary research with Craig’s own investigations to come up with his ultimate recipe for long-term success.

How does the 7Twelve portfolio work? It molds the confusing world of investments into a system that requires just a little regular upkeep. It is not greedy. It is a collection of mutual funds, index funds, or exchange-traded funds that covers a wide variety of assets, from stocks and bonds to real estate and commodities, so it should enable you to profit when certain assets grow and protect you from losing too much when certain types of assets drop in value.

During the past two years, after the financial markets’ near collapse in 2008 and its rocket-powered recovery in 2009 and 2010 (at least so far), people have lost faith in the ability of markets to reflect the true value of things. Money that people saved for years, even decades, disappeared, and much of that vanished wealth never returned. It was a harsh lesson for those who staked their future on the stock market—which was most of us.

It is disappointing but not difficult to understand why real estate prices dropped, and why they have not returned. But why did stocks fall so precipitously, and then rise again so rapidly? Why did they drag down so many other assets, too? How can one protect savings from that kind of disaster without eliminating any possibility of long-term growth?

A widely diversified portfolio that is rebalanced systematically, like the 7Twelve, is a good start toward answering those questions. What’s more, the 7Twelve method ratchets down your exposure to market risk as you age, thereby consolidating and protecting your long-term gains.

The 7Twelve method is not rapid-fire and is not designed to get you rich. It may not be exciting. But it is useful, and its clarity and simplicity belie its sophistication. Try it—you just may like it.

MARION ASNES

March 2010

PREFACE

7 Twelve™ provides a recipe for building a multi-asset investment portfolio with 12 low-cost mutual funds. The recipe is more important than the ingredients. A poor recipe with good ingredients produces a poor end product. A great recipe with average ingredients produces an acceptable outcome. A great recipe with great ingredients is the ideal scenario—and this book provides information about both.

Too many investors have portfolios that lack diversification breadth. A few mutual funds that seem different are often cobbled together. 7Twelve, on the other hand, is a diversified, multi-asset portfolio by design.

In addition to providing a recipe for a diversified portfolio, 7Twelve also provides guidance on portfolio management over the entire lifecycle. From our early working years to the years beyond retirement, the 7Twelve portfolio can be adapted to meet our ever-changing personal and family circumstances.

The 7Twelve plan is rich in supporting historical performance data. No conjecture here. No Ph.D. needed either. The information is presented simply so that a person who is relatively new to the field of investing can easily grasp and implement the 7Twelve portfolio recipe.

The 7Twelve will be of value to young investors as they start building their investment portfolios; to middle-aged individuals who need to start ratcheting down the risk of their portfolios as they move closer to retirement; and to retirees who need to ensure that their retirement portfolio is durable and insulated from large losses. Very simply, investors of any age can benefit from the guidance in 7Twelve. Everyone is welcome in this kitchen.

The book is organized into 15 bite-sized chapters. Chapters 1 and 2 introduce the 7Twelve recipe for building a diversified, multi-asset investment portfolio, and Chapter 3 demonstrates how our diversification is actually achieved. Many investors are less diversified than they think.

Chapter 4 introduces various ways to meaningfully measure portfolio performance. Chapter 5 outlines the performance benefits of building a low correlation portfolio. Chapters 6 and 7 focus on the ongoing management of the 7Twelve portfolio—from periodic rebalancing to changes in the asset allocation over the lifecycle.

From there, Chapter 8 addresses the poignant issue of portfolio durability during the retirement years. Chapters 9 and 10 present research results on two much debated investing topics: value versus growth and active versus passive. Chapter 11 sheds light on two very prominent types of mutual funds offered in 401(k) retirement plans: target date funds and balanced funds.

Dilemmas created by undersaving are covered in Chapter 12. And then Chapter 13 investigates the equity premium and how that issue has a huge effect on how investment portfolios are built. Chapter 14 is a summary, outlining mutual funds and exchange-traded funds that could be used as the ingredients in the 7Twelve recipe.

Chapter 15 is the simple, simple summary of a straightforward portfolio design.

For the reader who just can’t get enough, my website (www.7TwelvePortfolio.com) contains monthly performance updates for the 7Twelve portfolio. In addition, there is downloadable software (an Excel spreadsheet) that allows you to compare the performance of other portfolios to the 7Twelve portfolio over various time periods that you control.

Author’s Disclaimer

Past performance of the 7Twelve portfolio is not a guarantee of future performance. This book does not represent investment advice nor is it an investment solicitation.

ACKNOWLEDGMENTS

I appreciate the help of Meg Freeborn, Bill Falloon, Tiffany Charbonier, and Chris Gage of John Wiley & Sons in getting this book produced in a timely fashion.

My deepest appreciation will always be reserved for my eternal companion Tammy. I love her. And just as important, I trust and respect her. Our children are great, too, and I love them each in a very individual way: Sara and Jon, Andrew and Shannon, Heidi, Mark, Nathan, Emma, and Jared.

My parents, as well as Tammy’s parents, have provided a lifelong example of integrity and endurance that has blessed our lives and the lives of our children.

Thanks also to Bob Vaughan, Robert Katz, Bryce Kurfees, and Andy Martin—each helpful in the early development of the 7Twelve portfolio.

Anciently, and almost cross-culturally, most numbers had an assigned symbolic meaning. So when people heard or read the number seven, for example, they were reminded of ideas of fullness and completion.

—Gaskill, Alonzo, The Lost Language of Symbolism (Deseret Book)

CHAPTER 1

A RECIPE FOR SUCCESS

A wise chef follows a good recipe. Likewise, wise investors should have a good recipe they follow when building a portfolio. The 7Twelve Portfolio is that recipe. By following it, investors will build a diversified, multi-asset portfolio.