After reading and reviewing The Standard & Poor’s Guide to Selecting Stocks by Michael Kaye, I read through his next book, The Standard & Poor’s Guide to the Perfect Portfolio. In this book, Kaye emphasizes five steps to allocate your assets and ensure a lifetime of wealth. These steps boiled down to:
1) Identify Your Goals and Objectives
2) Choose the Specific Asset Classes in Which to Invest
3) Determine What Percentage of Your Total Assets Belongs in Each Asset Class
4) Decide Which Investments Products to Use
5) Monitor the Performance of Your Portfolio and Adjust Your Asset Mix if Warranted
I believe this to be an intermediate investment level book in terms of how much prior understanding you should have of money management and general knowledge of bonds, stocks, mutual funds, and real estate. If you were to pick up this book without knowing anything, you would gain some value from this book. On the other hand, you would gain much more if you knew your investment options beforehand so you have an idea on how to allocate them properly (which this books helps you do). Kaye tries to show how to construct a diversified portfolio of assets based on the risk tolerance you can handle with respects to your stage in life, career pathway, and other independent situations (which include having dependents, investing experience, and goal for your financial future). While you can easily go to an online calculator and calculate what percentage you should be invested in stocks based on your age, it’s not as simple as a single calculation. This book goes into more detail on how and why it is vital that you take into account many factors when determining your portfolio mix.
Interesting Notes While Reading Through This Book
– Chapter 4 (The Location of Your Assets: choosing the right accounts) has a very thorough explanation and calculations of the value of setting up a traditional or Roth IRA.
– Mutual funds are required by the SEC to hold more than 20 securities. Chapter 3 has a comprehensive explanation of everything you should know when starting with mutual fund investments.
– Kaye writes that “it costs a middle-income family approximately $250,000 to raise a child from birth to age 17.” This is another reason why it is so vital that you have a portfolio constructed to fit the lifestyle you need because keeping money in the bank may not even keep up with the rate of inflation.
– Finally Michael Kaye writes that “tax considerations should never be the sole factor and outweight your investment analysis in determining what to buy, sell, or hold.” I could not have agreed with him anymore regarding this comment. So many people try to hold onto securities for more than a year to take advantage of the long-term capital gains tax rate, and a lot of times they don’t realize that they might not even have a capital gain at the termination of that year to take advantage of. For now, my short analysis is that if you’re young, take your short term gains as they come, and change your strategy once you have more money to construct a more diversified portfolio later in your investing years. I will go into further detail of the benefits of the short-term vs. long-term capital gain benefits in another article.
What Was Left Out
While Michael Kaye did a great job with this book, what I believe was left out was not how to construct a portfolio of various types of assets, but how to construct a “perfect stock portfolio.” Now there may not be a straightforward answer to that question, but that was one of my early expectations (even though it was not the goal of the book) because a lot of investor’s assets will be in stocks or mutual funds. Many investors aren’t aware of how to truly diversify a stock portfolio, and trying to diversify a stock portfolio means more than just buying companies in different sectors. In his previous books, Kaye writes how to find stocks based on financial statistics/ratios that you are looking. Therefore I was looking to build upon that and find how to construct an effective portfolio in a variety of economic conditions.
Investor Level: Intermediate
Release Date: October 2007
Overall Grade: B+
Bottom line: Read this book after you read his first book on stock screening and selecting stocks.