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The Behavioral Portfolio was written for financial advisors, but would also be useful for engaged individual investors.
Your asset allocation decision is one of the most important decisions you will make in your life and is worthy of significant time and thought. Almost all of your returns and risk will be determined by asset class selection.
The best predictor of an investment’s long-term return is its current yield – for fixed income that’s the effective interest rate and for stocks it’s the earnings yield. As of September 2021, both were lower than they had been in over a century. Ilmanen notes that after four decades of very good investment returns, investors have come to expect higher than normal returns instead of the lower than normal expected returns corresponding to today’s price levels.
Favorite books read in 2024: Supercommunicators, Atomic Habits, Take the Stairs, Verbal Judo, Dollars and Sense, Nudge: The Final Edition, Give and Take, Masters of the Air and more...
This fun read was Richard Thaler’s account of his both his own journey and how behavioral economics started as a fringe movement and ended up being widely accepted as more explanatory of how decisions are made in the real world than classical economics.
This book was a pretty easy read, though at times it felt like a rant and was redundant. On the positive side, he calls out that many investors are not being well served by their brokers or advisors. Many people, especially with very simple financial situations may be able to take care of their own investing needs. He rightly calls out so-called advisors who are actually sales people and who don’t work under the fiduciary standard, which requires working in their clients’ best interests. He sheds light on how hard it is to pick stocks or to time the market, and how much time and money is wasted in this endeavor.