Contents
1. Setting the scene: What is risk for a personal investor?
Think about risk before it hits you
Fraud and betrayal
How much risk can you tolerate?
Know your niche
2. Understand your behaviour: "Hope for riches and protect yourself from poverty"
Insights from behavioural finance
Investor biases
Investor preferences
Investment strategy and behavioural finance
Traditional finance, behavioural finance and evolution
3. The personal pension challenge
Retirement date uncertainty
Life expectancy
It is normally dumb to self-insure
Income uncertainty
How much income can I draw?
4. Investment returns
Sources of investment performance
Are government bonds risk-free?
Safe havens that provide different kinds of shelter
What premium return should bond investors expect?
The place of safe-harbour government bonds in strategy The equity risk premium
Equity risk: don’t bank on time diversifying risk
Manager performance
5. Advice and investment strategy
Choosing an adviser
Investment beliefs
Conflicts of interest
How should investor strategies evolve?
Model investment strategies
Asset allocation models: an essential discipline
Risk-taking and portfolio rebalancing
Short-term investment strategies
How safe is cash?
How do investors invest?
6. Are you in it for the long term?
The time horizon for private and institutional wealth
Long-term investors
Financial planning and the time horizon
The danger of keeping things too simple
Declines in prices are sometimes good for you
Laddered government bonds: a useful safety-first portfolio
What’s the catch in following a long-term strategy?
Market timing: an unavoidable risk
Some “keep-it-simple” concluding messages
The chance of a
bad outcome may be higher than you think
7. Setting the scene
A health warning: liquidity risk
“Liquidity budgets”
Illiquidity in normally liquid markets
Behavioural finance, market efficiency and arbitrage opportunities
Barriers to arbitrage
Implementation costs, market evolution and arbitrage
8. Equities
The restless shape of the equity market
Stockmarket anomalies and the fundamental insight
of the capital asset pricing model
“Small cap” and “large cap"
Will it cost me to invest ethically or sustainably?
Don’t get carried away by your "style"
Should cautious investors overweight value stocks?
Equity dividends and cautious investors F
Fashionable investment ideas: momentum strategies
Home bias: how much international?
Who should hedge international equities?
How much in emerging markets?
Fashionable investment ideas: frontier markets
9 Credit
Credit quality and the role of credit-rating agencies
Corporate bonds and stockmarket volatility
Portfolio diversification and credit risk
Local currency emerging-market debt
Securitisation, modern ways to invest in bond markets,
and the credit crunch
Mortgage-backed securities
The role of mortgage-backed securities in meeting investment objectives
Quantitative investment
International bonds and currency hedging
10 Alternative investments
10 a) Private equity: information-based investment returns
What is private equity
Private equity market risk
Listed private equity
Private equity portfolios
Private equity returns
10b Hedge funds
What are hedge funds?
Alternative sources of systematic return and risk
“Do hedge funds hedge?"
The quality of hedge fund performance data
Are hedge fund fees too high?
The importance of skill in hedge fund returns
The shape of the hedge fund market
Hedge fund replication and “alternative betas”
Hedge fund risk
Madoff, hedge fund due diligence and regulation
Illiquid hedge fund investments and long notice periods
Lies, damn lies and some hedge fund risk statistics
“Perfect storms” and hedge fund risk
Managing investor risk: the role of funds of hedge funds
How much should you allocate to hedge funds?
10c Real estate
What is real estate investing?
Home ownership
Commercial real estate
What are the attractions of investing in real estate?
Diversification
Income yield
Inflation hedge
Styles of real estate investing and opportunities for active management management
What is a property worth and how much return should you expect?
Private and public markets for real estate
International diversification of real estate investment
11 Art and investments of passion
How monetary easing probably inflated the prices of fine art and collectibles
Psychic returns from art and collectibles
Wealth, inequality and the price of art
Art market indices
Price indices for other investments of passion or collectibles
Investing in art and collectibles
Shared characteristics of fine art and other investments of passion
Use of expert opinion for forecasting, valuation and risk modelling
Collectibles as collateral