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The Little Book that Saves Your Assets

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The Little Book that Saves Your Assets

What the Rich Do to Stay Wealthy in Up and Down Markets

Wiley,

15 min read
10 take-aways
Audio & text

What's inside?

Grandma always said not to put all your eggs in one basket. Good advice for eggs, great advice for financial assets.

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Editorial Rating

7

Qualities

  • Applicable

Recommendation

A successful football team needs a strong offense to gain ground and score points, a sturdy defense to hold firm under attack and a decisive coach to make intelligent substitutions when necessary. These are exactly the characteristics you need to manage your investment portfolio, says David M. Darst, chief investment officer at Morgan Stanley. Darst is an acknowledged expert on asset allocation, a “fundamental principle of investing,” which stipulates that you shouldn’t put all your financial eggs in one basket. Instead, you should spread your wealth among various diversified, “uncorrelated” investments. Although Darst’s numerous analogies are oversimplified, and his information on how to rebalance your portfolio is fairly general, his skill at breaking financial concepts down into simple terms makes his libretto very useful to rookie investors. getAbstract recommends his basic, savvy book to anyone who may be confused by the financial jungle, or anyone who wants to invest simply and smartly.

Summary

Asset Allocation

Investing requires common sense. If you place all your money in only one or two types of investments, or in assets that are all in the same class (only stocks or only real estate, for example), you risk losing everything if that sector goes sour. The best way to organize and manage your financial portfolio is through a balanced asset allocation. This approach means investing in a mix of financial assets – bonds, stocks, real estate, cash, commodities, gold, and so on – to achieve your investment goals. Each class of assets responds differently to shifts in the economy and financial markets. Therefore, diversifying your assets enables you to minimize the risk of loss while maximizing your potential gain. Failure to do so can be a major mistake for any investor. Asset allocation is important for three primary reasons:

  1. Diversification – Regardless of the economic and financial environment, some kinds of investments will continue to earn. Thus, you can build wealth over time. Invest in “uncorrelated” assets, that is, asset classes that react differently to market forces or changes in the economy. For instance, bonds are ...

About the Author

Chartered financial analyst David M. Darst is a managing director at Morgan Stanley, and the chief investment strategist for its Global Wealth Management Group. He chairs the firm’s Asset Allocation Committee.

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