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Balanced Asset Allocation: How to Profit in Any Economic Climate


Praise for Balanced Asset Allocation

"Alex Shahidi's book is a magistral piece that will be enjoyed by anyone with a serious interest in investing and asset allocation. The intellectual rigor with which Shahidi leads the reader from beginning to end is breathtaking, debunking many preconceived ideas from the institutional world while coming up with many novel and often counterintuitive ones. Through an analysis of various economic environments (past and future), Shahidi dissects the shifting correlations (and inverse correlations) between various asset classes (equities, fixed income, inflation protected securities, commodities…). This book is most timely in today's deleveraging, and possibly low return, world."
—Charles de Vaulx, Chief Investment Officer and Portfolio Manager, International Value Advisers (IVA), and recipient of Morningstar's "International Stock Manager of the Year" award in 2001

"Building balance as described herein should be the foundation of all portfolios; this book is essential reading for any investor. Alex distills his comprehensive understanding of the economy, risk assets, and portfolio construction to its essence. The result is to make these valuable concepts accessible to a wide audience. Assimilating the wisdom in this book will increase the dependability of any portfolio."
—Peter Joers, III, Co-Founder, Greenline Partners; former Client Advisor at Bridgewater Associates

"For many investors the most critical decision they make is in choosing their default portfolio. Yet for how important this decision is, remarkably little that is useful has been written. Alex does a phenomenal job proposing a simple yet effective solution. Balanced Asset Allocation is one of those rare books that is both easy to read and provides great insights."
—Nick Nanda, Co-Founder, Kaleidoscope Capital; former Portfolio Manager on the Asset Allocation team at Grantham, Mayo, Van Otterloo & Co (GMO)

"There are many books on investing, but precious few that buck the consensus in a logical, well-argued manner. Read Alex Shahidi's book with an open mind and you are sure to become a better investor, even if you disagree with his unconventional analysis."
—Samuel Lee, Strategist, Morningstar

ALEX SHAHIDI is a leading investment consultant managing multi-billion dollar portfolios. He focuses on advising large pension funds, foundations, endowments, and ultra-high-net-worth families, and is responsible for managing over $13 billion in assets. Alex is a Chartered Financial Analyst Charterholder, Certified Investment Management Analyst, and a Certified Financial Planner. Since 2008, he has consistently been recognized as one of the top financial advisors in the country by national publications such as Barron's, Worth, and On Wall Street. His comments about asset allocation have been referenced in the Wall Street Journal, MarketWatch, Money News, and Advisor Perspectives.

Foreword Bill Lee ix

Acknowledgments xi

About the Author xiii

Introduction 1


The Economic Machine: Why Being Balanced Is So Important Today 5


Your Portfolio Is Not Well Balanced 19


The Fundamental Drivers of Asset Class Returns 29


Viewing Stocks through a Balanced Portfolio Lens 49


The High Value of Low-Yielding Treasuries within the Balanced

Portfolio Framework 69


Why TIPS Are Critical to Maintaining Balance (Despite Their

Low Yield) 89


Owning Commodities in a Balanced Portfolio 101


Even More Balance: Introduction to Other Asset Classes 115


How to Build a Balanced Portfolio: Conceptual Framework 127


How to Build a Balanced Portfolio: The Step-by-Step Process 143


The Balanced Portfolio: Historical Returns 155


Implementation Strategies: Putting Theory into Practice 181


Conclusion 195

About the Website 197

Index 199