John Wasik’s Nano Portfolio Performance Scrutinized

09/14/2010 Share 0 comments

John Wasik has been a professional journalist and author for 30 years specializing in personal finance, the environment, investing and social issues. John has proposed a Nano plan investment portfolio which employs just a handful of index or exchange- traded funds (ETFs) to cover virtually the entire world of bond and stock markets. This portfolio is supposed to be rebalanced annually.

John Wasik presents a classic asset allocation strategy with simple buy and hold.

• 20% in Vanguard Total Stock Market VIPERS (VTI) – alternatives: SPY, IWM    
• 20% in Vanguard Total International (VGTSX) – alternatives: EFA, VEU, EEM, VWO, ADRE     
• 20% in Vanguard REIT VIPERS (VNQ) – alternatives: IYR, ICF
• 20% in iShares Lehman TIPS Bond (TIP)    
• 20% in iShares Lehman Aggregate Bond (AGG) – alternative: BND

 
Things to note about the portfolio:

• With 40% in fixed income, this would be considered moderate risk
• With VGTSX covering both international and emerging markets (albeit in one fund) this would be something between a 4 and 5 asset class portfolio
• VGTSX is not an ETF; while VGTSX can easily be replaced by VEU (Vanguard FTSE All-World ex-US ETF) we will keep VGTSX because it has a longer history for back testing

 We will make a comparison of the performance of this portfolio with

• Rebalancing every month as opposed to every year
• Simpler Is Better (SIB) portfolios we discussed in a previous article,
• Tactically managing the portfolio

 The first set of results compares strategic asset allocation performance. What we note is:

• All portfolios suffer from the sharp downturn and is what is driving the increasing move towards a tactical allocation strategy
• The lazy portfolio – rebalancing once a year performs as well as the monthly rebalancing
• Wasik’s portfolio performance matches the 4 Asset SIB closely
• The extra asset class in the 5 asset SIB enables it to outperform everything else

The second set of results compares tactical asset allocation performance. What we note is:

• The tactical asset allocation strategies clearly mitigate the downturn
• Wasik’s portfolio performance matches the 4 Asset SIB closely when tactical asset allocation strategies are applied to both
• The extra asset class in the 5 asset SIB enables it to outperform everything else

 
Takeaways:

• ETF’s are a good vehicle for any portfolio and with increasing track record, it’s possible to demonstrate good historical performance
• It is increasingly clear that deploying a tactical asset allocation strategy is key. All buy and hold strategies are going to suffer the same downturn properties and with choppy market conditions, minimizing downside risk is critical
• With a buy and hold, there is little difference between monthly or annual rebalancing so you can be very lazy if you don’t mind the downside!
• Five asset classes perform better in all cases – in the TAA case, the five asset SIB gives you an extra 6% a year since inception – doubling the asset base every decade

labels:investments,

Symbols:ti,vnq,tip,agg,veu,spy,iwm,efa,iyr,icf,bnd,eem,vwo,adre,

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