10/08/2010
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Alexander Green proposed this
The Gone Fishin' Portfolio which was outlined in his book '
The Gone Fishin' Portfolio'. Based on the book, the following is the allocation using Vanguard low cost index funds (in the Bogleheads forum, there is a discussion
thread devoted to this portfolio):
- Total Stock Market Index (VTSMX) - 15% VTI
- Small-Cap Index (NAESX) - 15% VB
- European Stock Index (VEURX) - 10% VEA
- Pacific Stock Index (VPACX) - 10% VEA
- Emerging Markets Index (VEIEX) - 10% VWO
- Short-term Bond Index (VFSTX) - 10% SHY
- High-Yield Corporates Fund (VWEHX) - 10% HYG
- Inflation-Protected Securities Fund (VIPSX) - 10% TIPS
- REIT Index (VGSIX) - 5% RWX
- Precious Metals Fund (VGPMX) - 5% GLD
The asset classes represented and their weights are
- US Equity 30%
- International equity 20%
- Emerging markets 10%
- REIT 5%
- Commodities 5%
- Fixed income 30%
This portfolio has six asset classes which is good – it should have good performance. It is overweighted in US equity and underweighted in commodities and real estate. This probably will put its performance closer to four or five asset portfolios.
With 30% of the assets in fixed income and with 10% of that in high yield corporate funds, this would be an aggressive portfolio.
We will compare this lazy portfolio with strategic and tactical asset allocation of the same asset base. We will also compare the results with a six asset SIB that has been discussed in a previous article. Intuitively we would expect the six asset class SIB to outperform the Gone Fishin’ portfolio.
The original lazy portfolio performs as well as strategic asset allocation that is rebalanced monthly using the funds as stated. If you are looking for a lazy portfolio, 5% over five years is reasonable
The six asset class strategic asset allocation has higher performance based on more balanced portfolio
Both tactical asset allocation portfolios outperform buy and hold consistently – the six asset SIB coming top of the performance table.
There is a 7% gap between the strategic and tactical asset allocation portfolios and a 10% difference between the tactical and strategic asset allocation on the SIBs. This would suggest that moving to tactical asset allocation will have a significant long term payoff
Takeaways
- Tactical Asset Allocation reduces downside risk and that wins in the current uncertain environment
- The Gone Fishin’ lazy portfolio has satisfactory returns but can be beaten
- ETF’s can readily be used to implement these portfolios with good performance
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