The Aspirational Investor

Ashvin B. Chhabra

• Publisher: Harper Business
• Year: 2015
• ISBN:
  9780062235107
• Topic: Business
• Subtopic: Trading
• Index: Business

The Chief Investment Officer of Merrill Lynch Wealth Management explains why goals, not markets, should be the primary focus of your investment strategy—and offers a practical, innovative framework for making smarter choices about aligning your goals to your investment strategy.

Today all of us bear the burden of investing wisely, but too many of us are preoccupied with the wrong priorities—increasing returns at all costs, finding the next star fund manager, or beating "the market." Unfortunately conventional portfolio theory and the grand debates in finance have offered investors only incomplete solutions. What is needed, argues Ashvin B. Chhabra, is a framework that shifts the focus of investment strategy from portfolios and markets to individuals and the objectives that really matter: things like protecting against unexpected financial crises, paying for education or retirement, and financing philanthropy and entrepreneurship.

The Aspirational Investor is a practical, innovative approach to managing wealth based on key goals and the careful allocation of risks rather than responding to the whims of the financial markets. Chhabra introduces his "Wealth Allocation Framework, " which accommodates the three seemingly incompatible objectives that must underpin every sound wealth management plan: the need for financial security in the face of known and unknowable risks; the need to maintain current living standards over time despite inflation; and the need to pursue aspirational goals for wealth creation.

Chhabra reveals some surprising facts about wealth creation, reinterprets the success formulas of investing greats like Warren Buffett, and closes the gap between theory and practice by simplifying our understanding of key asset classes and laying out a concise roadmap for identifying, prioritizing, and quantifying financial goals. Raising the bar for what we should expect from our investment portfolios—and our financial advisors— The Aspirational Investor sets us on a path to more confident and fulfilling financial lives.

Index

The pagination of this electronic edition does not match the edition from which it was created. To locate a specific entry, please use your e-book reader’s search tools.

Pages numbers followed by f and n indicate figures and notes.

active management, of investments

efficient market debate and, 2–3, 13–18

manager alpha and market beta and, 65, 110–12, 141–42, 145–49, 204n

as zero-sum game, 12, 147

see also Endowment model of investing; professional advisors

Against the Gods: The Remarkable Story of Risk (Bernstein), 203n

aggressive risk allocation, 131, 131f

agrarian age, dominant economies in, 31

agricultural revolution, 185

All the Money in the World (Bernstein and Swan), 63–64, 68

alpha

active management and, 110–12, 147–49, 204n

long-short funds and, 112–14

alternative investments

allocated to risk buckets, 97–98, 109–14

Endowment model of investing and, 159, 163–64

ambiguity, risk/reward and resolving of, 21–23, 21f

Amsterdam

real estate values in, 37–41, 40f, 107

tulip bulb bubble and, 46, 50

anchoring, in behavioral finance, 25

angel investments, allocated to risk bucket, 98

“animal spirits,” Keynes and, 47, 51

annuities, allocated to risk buckets, 97

aspirational goals

in objective-driven investing, 122, 123f, 126f, 127

as principal objective of investing, 91–92

for retirement, 80

aspirational risk bucket and portfolio

asset allocation and, 94, 95, 97–98, 132, 134

caution about, 140

difficult-to-classify asset allocation, 103–5, 103f, 106, 108, 109, 113–16

performance measurement and, 116–18

purpose of, 93, 93f, 94

reviewing and rebalancing of, 136–37, 137f

stress tests and, 135

aspirational risk bucket and portfolio (continued)

Wealth Allocation snapshot and, 128

bankruptcy, in US, 61–62

Barber, Brad, 11–12, 111

Barclays Aggregate Bond Index, 10, 14

“beating the market”

achieving goals versus, 3, 18, 116, 183, 186

Berkshire Hathaway and, 14–15

efficient frontier and, 88

Malkiel and, 13

market portfolio construction and, 146, 154, 163

Wall Street Journal dart throwers and, 16–18

Beebower, Gilbert, 146–47

behavioral finance, 2, 3, 192n

biases as risk/reward trade-offs, 24–26

complex attitudes toward risk and, 88–89

determining ability to bear loses, 128, 130–31, 131f

speculative bubbles and, 51–53, 52f

benchmarks

alpha and beta and, 110–11, 145–50

fund performance and, 12

performance measurement and, 116–17

Berkshire Hathaway. See value investing

Bernstein, Peter, 63–64, 68, 203n

beta

active management and, 110–12, 141–42, 147–49, 204n

long-short investing, 112–14, 201n

BH Reinsurance, 177

Black Swan: The Impact of the Highly Improbable, The (Taleb), 90–91

Bogle, Jack, 14

Bonderman, David, 65

bond funds

annual returns and, 10

diversification and, 141–42, 144–45, 149, 152

Endowment model and, 160–64, 171–72

investment allocations and, 14, 87, 97, 117

Boston College, Center for Retirement Research at, 73

Brinson, Gary, 146–47, 205n

British Railway bub...