Tim Hale Simpler decisions for better results Second Edition Financial Times Prentice Hall is an imprint of Harlow, England London New York Boston San Francisco Toronto Sydney Singapore Hong Kong Tokyo Seoul Taipei New Delhi Cape Town Madrid Mexico City Amsterdam Munich Paris Milan
Preface / x Author's acknowledgements / xii Publisher's acknowledgements / xiv Foreword / xvi Introduction / 1 1.1 What should I do with my money? /1 1.2 Some eye-openers to get you thinking /1 1.3 How this book will help you / 5 1.4 How this book works / 6 1.5 A few points to note / 8 Smarter UnwestSng basics 1 Simplifying the confusion / 13 1.1 Choices, choices, choices /13 1.2 How did we get here? /14 1.3 Battling for investors' money /17 1.4 Reducing confusion and complexity /18 2 Covering the basics / 21 2.1 What is smarter investing? / 21 2.2 Ten points of focus for smarter investors / 24 2.3 The two distinct phases of investing / 32 2.4 There are no perfect answers / 36 2.5 Summary: smarter investing basics / 37 3 It only takes a minute / 38 3.1 Twenty tips for smarter investing / 38
vii Smarter thinking Get smart - find your philosophy / 47 4.1 Don't be a loser / 47 4.2 The foundations of your philosophy / 50 4.3 The path to establishing your philosophy / 56 4.4 Can active managers win? / 57 4.5 Do a few managers outperform over time? / 66 4.6 Can you identify them in advance? I 70 4.7 Don't just take my word for it / 71 4.8 Summarising what you now know / 75 4.9 A personal philosophy / 76 4.10 Your investment philosophy rules / 79 Get smart - manage your emotions / 83 5.1 You are your own worst enemy / 83 5.2 Challenges to decision-making / 87 5.3 Thirteen questions for you to answer / 89 5.4 Ms Rational versus Mr Irrational / 98 5.5 Wise words to leave you with /102 5.6 Behavioural rules and tips /102 Building smarter portfolios Understanding your emotional risk tolerance / 109 6.1 What is your risk profile? /109 6.2 Why is it so important? /Ill 6.3 Exploring your risk profile /112 6.4 The process from here / 116 Sorting out your goals / 118 7.1 Well thought-out goals underpin success /118 7.2 Five steps in defining your goals / 121 7.3 Basic financial survival goals /128 7.4 A working example /138 7.5 Useful calculations /141 7.6 Summary: investment goals /142
viii Smarter Investing 8 Smarter risk taking / 143 8.1 2008 - a violent introduction to risks /144 8.2 The cost of capital /146 8.3 Focusing on market risk /148 8.4 The risks and rewards of being a lender /149 8.5 The risks and rewards of being an owner /151 8.6 Therefore, risk choices are fortunately limited /153 9 Smarter portfolio construction / 154 9.1 The portfolio building process /155 9.2 Construction goals and approach /155 9.3 Deciding on the asset class menu /159 9.4 Ground rules for the growth portfolio /164 9.5 Building your growth-oriented portfolio return engine /171 9.6 Building a robust defensive asset mix /175 9.7 Portfolios along the risk spectrum /180 10 Smarter portfolio choice / 183 10.1 Understanding and using the matrix /183 10.2 Smarter Portfolio insights /186 11 An insight into key asset classes / 193 11.1 The thrills and spills of equities /193 11.2 Voting machine v. weighing machine /195 11.3 An insight into equity market returns /198 11.4 Developed equity market returns / 204 11.5 Emerging market equities / 206 11.6 Value (less financially healthy) companies / 208 11.7 Smaller companies / 210 11.8 In summary - equity asset classes / 213 11.9 Commercial property - a diversifier / 214 11.10 Commodity futures - a bit esoteric / 216 11.11 Defensive assets / 219 11.12 Key asset classes excluded / 222 11.13 Summary of asset class assumptions / 223
Smarter implementation 12 Hire an adviser or do it yourself? / 229 12.1 Hiring an adviser / 229 12.2 What attributes will a leading adviser have? / 231 12.3 Checklist for finding a leading wealth advisory firm / 234 12.4 The do-it-yourself option / 234 12.5 Don't forget about tax / 244 13 Smarter product choices / 247 13.1 The serendipity of index-fund investing / 248 13.2 Choosing your market index / 249 13.3 Product structures / 252 13.4 Selecting the best passively managed index funds and ETFs / 254 13.5 Passive providers / 257 13.6 A possible shortlist- caveat emptor! /262 13.7 Using active funds (if you must) / 263 14 Costs - what a drag / 267 14.1 Why do we throw our money away? / 267 14.2 More than just management fees / 268 14.3 Summary: costs - what a drag / 275 15 Standing firm on index funds / 276 15.1 Common put-downs / 276 15.2 Bond investing: active or index? / 281 15.3 Summary: favour index strategies / 282 Conclusion / 284 Bibliography / 286 Websites / 286 Insightful books / 286 Data-orientated books / 287 Asset allocation software / 288 Additional sources / 288 Appendix 1 / 289 Index / 291