The Investment Answer Book Synopsis & Impact To Cryptocurrency @senseicat

"When Wall Street veteran Gordon Murray told his good friend and financial advisor, Dan Goldie, that he had only six months to live, Dan responded, "Do you want to write that book you've always wanted to do?" The result is this eminently valuable primer, which can be read and understood in one sitting, and has timeless advice that benefits you, not Wall Street and the rest of the traditional financial services industry. The Investment Answer will change the way you think about investing."

After reading this New York Times bestselling book, I felt compelled to take notes, and would like to share the knowledge with our community. There are definitely some important takeaways that can be applied to cryptocurrency and block chain technology.

My Notes:

The Do-It-Yourself-Decision:

Independent Fee Only Advisor: legally required to act as fiduciaries to their clients and are free from conflicts, constraints, and pressures that brokers face. The fee is calculated based on the amount of money that he is managing from you. He only receives compensation from me and does not receive payment from the investments he selects or commissions from moving your money back and forth between investments. A broker or investment advisor is working for the firm. The Independent Fee Only Advisor is working for me.

The Asset Allocation Decision:

Equities are ownership in a company.

Small company stocks are riskier than large company stocks, and therefore deliver a higher return for taking a higher risk.

The primary driver of investment returns is risk.

An asset class is a group of similar investment securities that share common, and objectively defined, risk and return characteristics.

Focusing on the desired mix of cash, bonds, and stocks is the single most important investment decision you will make! The blended portfolio has lower volatility (lower standard deviation) than any other individual asset.

Bonds is a tool to reduce volatility of your portfolio and should be restricted to higher quality and shorter maturities, such as short-term U.S. treasuries, government agencies, and the high-quality corporate bonds. These are the safest and least volatile fixed income asset classes.

Focus on the performance of your portfolio as a whole, rather than the returns of it’s individual components.

The Active versus Passive Decision:

No investor will consistently beat the market over long periods except by chance.

Most funds failed to beat their respective benchmarks.

Markets tend to have bursts of large gains (or losses) that are concentrated in a relatively small number of trading days.

Markets work because no single investor can reliably profit at the expense of other investors.

There is little evidence to suggest that past performance is indicative of future performance. A more sensible approach to investing is passive investing. This is based on the belief that markets are efficient and extremely difficult to beat, especially after costs. The best known method is indexing and the most popular benchmark index is the S&P 500 which is comprised of 500 U.S. large cap stocks that currently make up about 70 percent of the market capitalization of the U.S. stock market.

The higher costs of active management are higher manager expenses, increased turnover, greater tax exposure—only manager expenses are disclosed to investors.

The Rebalancing Decision:

With a passive approach to investing using asset classes as your primary vehicles, there will be times when a minor adjustment to your portfolio’s allocations will be beneficial. This change should not be based on forecast, but rather on the fact that your portfolio has drifted away from its original asset class percentages and needs to be put back in line with its targets—rebalancing.

What about alternatives?

A. Hedge funds: make bets are global-macro trends, distressed debt, currency movements, commodities, corporate mergers, and short-selling (betting on price declines). This is not an asset class. Manager compensation is high 1.5 percent plus 20 percent of profits. Leverage is often employed (borrowing against invested assets) to magnify returns. Liquidity is low (restrictions on getting your money out).

The median life of a hedge fund is only 31 months. Fewer than 15 percent of hedge funds last longer than six years. Understanding historical returns for hedge funds is difficult because the return databases have many problems. Managers provide their return information only when they want to (presumably when their returns are good), and funds with poor results that are closed are removed from the database entirely. Hedge fund returns are far lower than reported.

Hedge funds are often higher in cost, less diversified, more leveraged, and less liquid than traditional investments like mutual funds.

B. Private Equity (Including Venture Capital)

Private equity funds take small equity investments and large amounts of debt and invest in companies that are private through leveraged buyouts and venture capital. Private equity managers make 2 percent in management fees and 20 percent of the upside.

Similar to hedge funds, performance is reported on a voluntary basis and bias on better performing funds.

Private equity is generally higher in cost, less diversified, more leveraged, and less liquid.

C. Commodities (Gold, Oil, Gas, etc.)

Commodities include natural resources such as agricultural products ), grains, food, and fiber), livestock and meat, precious and industrial metals (gold, silver, etc.) and energy (oil and gas). You can invest in commodities in a variety of ways such as through mutual funds, futures contracts (bets on the future price of a commodity), exchange traded funds, or direct ownership (usually impractical due to storage).

Commodity advocates will tell you that commodities server as an inflation hedge and provide a diversification benefit. It may be true in short periods only. A good hedging vehicle is something that is highly correlated (moves together) with the risk you are trying to reduce, both in the short run and the long run. In the short run, commodities prices can be very volatile—many times great than inflation, which is very short to change.

Unlike traditional assets, commodities do not generate earnings, pay interest, or create business value. They are a speculative bet in which there is a winner and a loser at the end of the trade.

**You do not need alternative investments in your portfolio to have a successful investment experience, particularly considering their higher costs, lack of diversification, and liquidity constraints.

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