Discussion Questions: Asset Allocation Book

1. Why is the decade of the 2000s often referred to as the "lost decade" for U.S. investors? Provide an explanation for why it really wasn't a "lost decade."

2. Discuss the pros and cons of portfolio optimization.

3. In chapter 2 Gibson discusses the historical performance of many different financial asset classes. Which asset classes is Gibson missing? Include both financial and non-financial asset classes in your response.

4. In chapter 4 Gibson discusses future returns of stocks and bonds. What outlook does Gibson provide for future stock and bond returns and why?

5. What evidence does Gibson provide against timing the market? Why is it so difficult to be successful at timing the market? Feel free to bring up points we have discussed during class.

6. Have U.S. stocks become less risky over longer holding periods? Provide evidence to support your claim.

7. Which set of asset classes produced the highest Sharpe ratio from 1972-2011? Why?

8. What are the benefits of a written investment policy statement for a financial planner and client?

9. Gibson describes a scenario where a new client asks, "Does diversification really work?" He answers, "Yes, it works. But you actually may be asking a different question: This is, will you like diversification?" What does Gibson mean by this?

10. Explain the diversification benefits of holding one of the following assets in an investor's portfolio with stocks:

1. International bonds

2. TIPs

3. Commodities