Leverage algorithms to take your investment approach to the next level Digital Wealth: An Automatic Way to Invest Successfully reveals core investment strategies that you can leverage to build long-term wealth. More than a simple review of traditional investment strategies, this innovative text proffers digital investment techniques that are driven not by people but by algorithms. Supported by asset allocation research, the secrets shared in this forward-thinking book have underpinned cutting-edge investment firms as they integrate algorithm-based strategies. In addition to presenting key concepts, this groundbreaking resource explains how these concepts can give you an edge over the professionals on Wall Street through details regarding achieving financial security and meeting financial goals rooted in a firm foundation in behavioral finance, portfolio tilts, and modern portfolio theory. Investment strategies have evolved from one generation to the next, and the ability to leverage new digital tools calls for another overhaul of traditional investment concepts. Investment techniques implemented by algorithm rather than by human monitoring can, in some cases, prove more successful. The key to a balanced portfolio is understanding what these algorithm-based strategies are, and how to best use them. * Explore insights from multiple Nobel Prize winning academics that can give your investment strategy an edge * Consider how technology can open up powerful techniques to mainstream investors, including tax-loss harvesting and automated rebalancing * Discuss how cost minimization and a strategic tax approach can boost your portfolio's compound growth * Identify strategies that support the long-term growth of your wealth Digital Wealth: An Automatic Way to Invest Successfully is an essential text for sophisticated individual investors and investment consultants alike who want to explore how digital tools can bolster financial success.
Preface xiii Acknowledgments xvii Chapter 1 America s Savings Challenge 1 We Don t Save Enough 1 The Key Change in America s Retirement Planning Process 3 How Financial Innovation Helps 4 The Magic of a 15 Percent Savings Rate 5 Notes 8 Chapter 2 The Risk of Not Investing in Stocks 9 The Short ]Term Risks 10 The Historical Perspective 10 The Logic 12 Chapter 3 The Enemies of a Stock Portfolio 15 Why Inflation Matters 16 Treasury Inflation ]Protected Securities (TIPS) 17 Asset Confiscation 18 Recession 19 Chapter 4 The Value of Time for Investors 21 Why Long ]Term Stock Investing Is Less Risky than It May Seem 21 The Long ]Term Picture 22 How Bonds Can Help 24 Note 27 Chapter 5 Core Assets of a Robust Portfolio 29 Asset Classes We Include 29 Individual Asset Classes We Exclude 34 Notes 39 Chapter 6 Dynamic Asset Selection Determining the Lowest ]Cost Option for Each Portfolio 41 Chapter 7 What Software Does Better than People 47 How Software Helps Investors 49 Example: All the Decisions an Algorithm Makes 50 Chapter 8 How International Investing Can Smooth Returns 53 Demographics Matter 54 Diversification Improves Your Industry Mix 56 Notes 58 Chapter 9 The Advantages of Exchange ]Traded Funds 59 The Benefits of ETFs 61 In ]Kind Transfers 62 The Risks of ETFs 63 Securities Lending Policies 65 Notes 67 Chapter 10 The Triumph of Low ]Cost Investing How Paying Less Gets You More 69 Fooled by Randomness 70 A Triumph of Marketing over Results 72 Notes 76 Chapter 11 Learning from Nobel Prize Winners 79 Milton Friedman, 1976 80 James Tobin, 1981 81 Harry Markowitz, 1990 81 William Sharpe, 1990 82 Daniel Kahnemann, 2002 83 Eugene Fama and Robert Shiller, 2013 83 Chapter 12 The Costs of Being Active 85 The Cost of Closet Indexing 87 The Other Costs of Active Management 88 Notes 90 Chapter 13 The Greatest Mistakes Made by Novice Investors 91 Starting Saving Too Late 92 Are You Using Tax Shelters Effectively? 93 Are You Taking Advantage of 401(k) Matching If Available? 93 Are You Diversified Internationally? 93 Are You Chasing Returns? 94 Are You Overpaying in Fees? 95 Are You Tracking the Right Index? 95 Do You Trade Too Much? 97 Chapter 14 Tilts and Other Ways to Help Long ]Term Performance 99 History of Market Thought 100 Data Mining 102 Debunking Strong ]Form Market Efficiency 103 Rationality 103 The January Effect 104 Sell in May and Go Away 104 Momentum 105 Value 105 Small Cap 106 Quality 106 Longer ]Term Mean Reversion 107 Assessing Tilts in a Portfolio Context 107 Notes 108 Chapter 15 Establishing a Tax ]Efficient Portfolio 109 Tax Shelters 111 Tax Efficiency for Retirement 111 Tax Efficiency for College 112 Tax Efficiency for Giving 113 Tax ]Efficient Asset Placement 114 Tax Loss Harvesting 115 Offsetting Gains with Losses 115 The Principal of Tax Deferral 116 How Tax Loss Harvesting Works 117 Challenges of Implementing Tax Loss Harvesting 117 Conclusion 119 Chapter 16 The Value of Rebalancing and Glidepaths 121 Rebalancing Keeps a Portfolio on Course 122 Tiered Rebalancing 125 Glidepaths 126 Notes 129 Chapter 17 How to Manage a Market Crash 131 Keep Stock Market Investing for Longer ]Term Money 133 Making Saving an Ongoing Activity 134 Pay Attention to Extremes of Long ]Term Valuation Signals 134 Don t Consider Stocks in Isolation 135 Remember that You May Underestimate Your Risk Tolerance in Good Markets 136 Chapter 18 Your Own Worst Enemy Is in the Mirror 139 The Biggest Threat to Your Returns Is in the Mirror 140 Always a Reason to Avoid Staying Out 141 The Returns You See Aren t the Ones You Get after Tax 141 The Media Isn t Your Friend 142 Overtrading 142 Home Bias 143 Failing to Take a Long ]Term Perspective 143 Availability Bias 144 Chasing Performance 144 Ignoring Fees 144 Holding Too Much Cash 145 How Software Can Help 145 Note 146 Chapter 19 Saving for Goals beyond Retirement 147 Tax Efficiency 148 Portfolio Construction 149 Emergency Funds 150 Investment Flow Chart 150 Chapter 20 A History of Diversified Portfolio Performance 153 Stocks vs. Bonds 153 The Impact of Recessions 154 The Impact of Inflation 155 The Danger of Averages 155 The Benefits of Combination 155 An Emerging Market that Has Emerged 156 Chapter 21 The Future of Wealth Management 157 Lower Costs 158 Democratization of Services 159 Increasing Customer Intimacy 160 Improved Financial Awareness 160 Note 161 Chapter 22 Conclusion 163 Author s Disclaimer 167 About the Author 169 Index 171
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