The Art of Asset Allocation: Principles and Investment Strategies for Any Market, Second Edition
The fully revised classic on employing asset allocation techniques to grow real wealth\ A global leader and preeminent expert in asset allocation, David Darst delivers his masterwork on the topic. In a fully updated and expanded second edition of The Art of Asset Allocation, Morgan Stanley's Chief Investment Strategist covers the historic market events, instruments, asset classes, and economic forces that investors need to be aware of as they create asset-building portfolios. He then explains...
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The fully revised classic on employing asset allocation techniques to grow real wealthA global leader and preeminent expert in asset allocation, David Darst delivers his masterwork on the topic. In a fully updated and expanded second edition of The Art of Asset Allocation, Morgan Stanley's Chief Investment Strategist covers the historic market events, instruments, asset classes, and economic forces that investors need to be aware of as they create asset-building portfolios. He then explains how to use modern asset allocation concepts and tools to augment returns and control risks in a wide range of financial market environments. This completely revised edition shows how to achieve asset balance with the author's proven methods, decades of expertise, relevant charts, practical tools, and astute analyses.Known as the king of asset allocation, Darst brings his expertise to bear to provide complete asset class descriptions, identifying historical risk, return, and correlation characteristics for all major asset classes. Using actual data, he explains the differences between tactical and strategic asset allocation, outlines clear rebalancing guidelines, and includes an annotated guide to both traditional and Internet-based information sources.Praise for the first edition:“You want to be a better investor, a better client, or a better advisor? DEVOUR THIS BOOK NOW!”-James J. Cramer“David Darst is the expert on Asset Allocation. He has chosen to share his decades of practical experience in The Art of Asset Allocation, to the benefit of professional and individual investors alike.”-Seth A. KlarmanDavid M. Darst is a Managing Director and the Chief Investment Strategist for Morgan Stanley's Global Wealth Management division, as well as a CFA charterholder and a member of the New York Society of Security Analysts. A highly sought-after international speaker, Darst is the author of Mastering the Art of Asset Allocation, The Complete Bond Book, and The Handbook of the Bond and Money Markets.
Foreword ixPreface xiUnderstanding Asset AllocationEssentials of Asset Allocation 3Overview 3Meanings of Asset Allocation 4Foundations of Asset Allocation 7The Risks and Rewards of Asset Allocation 10Principal-Protection Assets and Principal-Growth Assets 16The Effects of Inflation on Purchasing Power 17The Asset-Allocation Process 21Overview 21Matching Asset Classes with Wealth Levels and Income Needs 22Types of Asset Allocation 24Intersections of Asset Allocation with Other Disciplines 33The Mechanics of Asset AllocationAsset-Allocation Tools and Concepts 41Overview 41Modern Portfolio Theory/Efficient Market Theory 42Asset and Portfolio Returns 45Asset and Portfolio Risk 58Risk and Return 72Assets' Returns and Correlations Caveats 84Asset-Allocation Optimization Models 86Asset-Allocation Optimization Software 93Asset-Allocation Rebalancing 95Overview 95RebalancingPrinciples 96Advantages and Disadvantages of Rebalancing 97Origins and Implications of Asset-Allocation Overweighting 100Scope of Rebalancing 106Special Considerations Involving Concentrated Positions 108Rebalancing Methods 115Asset-Allocation Drift-No Rebalancing 125Rebalancing Sensitivity Analysis 127Critical Success Factors in Rebalancing 144Underpinnings of Asset AllocationIndividual Investor Behavior 151Overview 151Factors Affecting Individual Investors' Asset-Allocation Decisions 152The Evolution of Individual Investors' Asset-Allocation Activity 153Primary Determinants of Individual Investors' Asset Allocation 157Strategic and Tactical Principles 162Individual Investor Behavioral Characteristics 171Financial Lessons from Market History 178Insights from Behavioral Finance 182Asset Class CharacteristicsDistinguishing Qualities of Asset Classes 201Overview 201Asset Supercategories 202Evaluating Asset Classes 204Participants within Asset Classes 206Asset Classes and Subasset Classes 209Asset Class Descriptions 211Asset Class Weightings and Uses 248Analyzing Assets' Rates of Return 255Overview 255Organization of Returns Data 256Assets' Annual Rates of Return by Groups of Years 257Assets' Annual Rates of Return by Individual Years 262Assets' Annual Rates of Return by Economic Environment 281Rotating Returns Leadership Among Asset Classes 291Equities Industry Sectors by Individual Years 295Leading Companies by Equity Market Capitalization 298Leading U.S. Companies' Rates of Return by Individual Years 302Financial Markets Analysis and Investment InsightsConstructing an Analytical Framework 309Overview 309Societal Analysis 310Market-Cycle Analysis 312Scenario Analysis 314Investor Satisfaction Analysis 317Strategy Implementation Analysis 321Comparative Financial Analysis 324Financial Market Climate Analysis 330Phases and Cycles in Asset Allocation 334Tactics and StrategiesAsset-Allocation Matrices and Worksheets 339Overview 339Worksheets in the Asset-Allocation Process 340Asset-Allocation Worksheets in Context 344Drawbacks of Asset-Allocation Worksheets 346Asset-Allocation Guidelines 347Investors' Asset-Allocation Cycles 352Sequencing of Market Outcomes 354Asset-Allocation Matrices 358Investor Profile Worksheet 359Investment Outlook Worksheet 361Investment Universe Worksheet 368Risk Mitigation Matrices 374Index 387
