Final answer:
The book 'Asset Allocation' by Gibson discusses the tradeoff between expected return and risk in asset classes such as stocks, bonds, and bank accounts. Stocks generally offer higher risk and potential for higher returns, making them suitable for younger investors. The best risk-adjusted returns depend on an individual investor's risk tolerance and life stage.
Step-by-step explanation:
The student asks about the asset classes that produced the highest risk-adjusted return from 1972-2011 according to Asset Allocation by Gibson. Although the book is not directly quoted in the given information, the principles of asset allocation suggest a tradeoff between expected return and risk. Investments such as bank accounts, bonds, and stocks each carry different levels of risk and potential returns. Stocks, on the average, carry the highest risk, but they compensate with higher potential returns over the long term. The key is finding a balance that suits an investor's stage in life and risk tolerance. Young investors often can afford to take on more risk with stocks for potentially higher returns, as they have time to recover from market fluctuations. On the other hand, individuals nearing retirement might prefer investments like bonds, which provide lower risk and more stable returns.