I believe that my primary lever as a long-term investor is asset class allocation, the decisions that I make regarding the proportion of assets I choose to place in particular classes of investments.  I generally ignore market timing and asset selection within classes; that is, I don’t pretend to know when to buy or sell or even what to buy or sell within an asset class.  I am sensitive to costs because one way to improve returns is by limiting expense ratios, 12b-1 fees, loads, brokerage costs, and advisor’s fees. So I usually invest in index funds and electronically traded funds (ETFs) linked to benchmarks.

I thought that this so-called modern portfolio theory, especially the allocation vs. selection part, was generally accepted as the normal way to invest but lately I’ve had some conversations that indicate that that isn’t necessarily the case.  (I.e., investing only in real estate, buying gold because the world is coming to an end, picking the best mutual funds of the last x years, a hot tip on some cancer treatment drug in early stage clinical trials; the list is endless.)

With that in mind, here’s a list of three recommended books, aimed at the responsible investor, laying out this approach:

• Henry Blodget‘s Wall Street Self-Defense Manual: A Consumer’s Guide to Intelligent Investing
• David F. Swensen, Unconventional Success: A Fundamental Approach to Personal Investment
• William J. Bernstein, The Investor’s Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between

All are proponents of the asset class allocation approach.  All three of them are strong advocates of using Vanguard (or TIAA-CREF, especially in Swensen’s case) rather than white shoe brokers.  But I like each of these books for different reasons: Blodget has an axe to grind with the investment industry that he has been banned from for life, so he’s got lots of juicy insider tidbits that ought to convince you that the investment industry is not working in your best interests.  Swensen manages the Yale University endowment and has equally harsh words for ‘conventional’ investing.  If anything, he’s more radical than the others, because he doesn’t want to recognize corporate bonds as a distinct asset class.  Bernstein is like your cranky know-it-all uncle whose wise words you will remember every time you look at the fees you’re paying your broker.  His is probably the most practical of the three, at least in terms of recommending specific allocations and how they would apply to real-world situations.

Pro tip: don’t watch the financial news.