End of the Year Review of Luminary Portfolios
12/30/2010 0 comments
That was then, this is now. It's time to review their progress and look at how they have performed in 2010. We have a relatively large number so we will end up finding the best performers and going through a playoff.
The first thing we present is our table of benchmarks. We created SIB (Simpler is Better) portfolios which are market indexes (ETF's are ideal for this) to measure how well any given plan and portfolios compares. A SIB gives you diversification and low cost with no thought to picking a stock or even sub-segment of an asset class.
|
MyPlanIQ Benchmark |
TAA 5 Yr Return Annualized |
TAA 1 Year |
SAA 1 Year |
Asset Classes |
|
15% |
8% |
10% |
6 |
|
|
12% |
7% |
10% |
6 |
|
|
11% |
6% |
11% |
5 |
|
|
9% |
8% |
11% |
4 |
|
|
11% |
1% |
10% |
4 |
|
|
6% |
-1% |
10% |
3 |
We present four return data points:
-
The five year annualized return based on a Tactical Asset Allocation strategy (TAA) -- this gives a viewpoint on the longer term behavior
-
The one year TAA return
-
The one year Strategic Asset Allocation (SAA) return
We note that for 2010, SAA portfolios have performed better than the SAA but TAA has a better performance metric in the longer run. This will calibrate what we see with the lazy portfolios.
The portfolios have been sorted alphabetically and we are going to start with the top part of the alphabet. The portfolios will be listed by decreasing number of asset classes and decreasing number of funds. We would expect that the portfolio with the greatest number of asset classes to have the highest returns and we will test that to see to what extent it is true.
Table of Lazy Portfolios and their classes and funds
|
Plan Name |
TAA 5 Yr Return Annualized |
TAA 1 Year |
SAA 1 Year |
Original |
Asset Classes |
|
10% |
10% |
14% |
12% |
3.5 |
|
|
11% |
7% |
9% |
8% |
4 |
|
|
7% |
-1% |
11% |
14% |
3 |
|
|
11% |
7% |
11% |
11% |
5 |
|
|
5% |
8% |
12% |
11% |
3 |
|
|
4% |
|
|
10% |
3 |
|
|
12% |
9% |
12% |
10% |
5 |
-
Frank Armstrong, author of The Informed Investor, proposed his portfolio for an MSN Money article
-
Ted Aronson and his AJO Partners manage about $25 billion of institutional assets. Aronson puts his family's taxable money in this well-diversified portfolio of no-load index funds
-
Frank Armstrong, author of The Informed Investor, proposed his portfolio for an MSN Money article
-
Dr. William Bernstein is the author of the "Intelligent Asset Allocator" and "The Four Pillars of Investing." He's also a physician, neurologist and financial adviser to high-net-worth individuals. He proposed two lazy portfolios -- The smart money portfolio and The no-brainer portfolio
-
Harry Browne proposed this one size fit all permanent portfolio. His theory has been discussed in numerous articles. A mutual fund PRPFX was constructed and named after his theory
-
Scott Burns has covered personal finance and investments for nearly 40 years and ranks as one of the most widely read personal finance writers in the country/ Andrew Tobias, a Harvard alum and writer of 12 books
-
Paul Merriman's FundAdvice.com website has indexed portfolios for several fund companies. The basic strategy is the same as with all the other Lazy Portfolios, here with 11 no-load index funds
The one year returns of the original portfolio are presented in order of highest to lowest.
How do the returns compare to what we would have expected?
|
Plan Name |
TAA 5 Yr Return Annualized |
TAA 1 Year |
SAA 1 Year |
Original |
|
7% |
-1% |
11% |
14% |
|
|
10% |
10% |
14% |
12% |
|
|
11% |
7% |
11% |
11% |
|
|
5% |
8% |
12% |
11% |
|
|
4% |
-1% |
10% |
10% |
|
|
12% |
9% |
12% |
10% |
|
|
11% |
7% |
9% |
8% |
-
Most of the portfolios beat our benchmarks -- this says that having a richer set of funds within an asset class has brought benefits as stocks have recovered throughout the year
-
All of the portfolios exhibited the same behavior of the buy and hold approaches beating TAA -- this is an important lesson that TAA, while having significant benefits in a choppy market, may not perform as well as SAA in a good market
-
The fact that the Bernstein no brainer had the highest return is testament to the strength of U.S. stocks, bolstered by significant support from the government
-
The Armstrong portfolio did well with the original strategy and the well accepted modern portfolio theory which may give a little better stability
-
As we end the year on a relatively strong note, there is still a note of caution and concern about the future and we will have to see how well these portfolios perform next year
Takeaways
-
2010 has been a good year for lazy portfolios as stocks have continued their recovery albeit with concern for the future
-
TAA has real benefits but so does SAA or buy and hold -- this year demonstrates this point
-
Index funds continue to show good results against managed funds
-
Larger asset class plans have the benefit of stability and good returns
-
ETF’s can be used to implement any of these strategies
We pick the top three -- Bernstein, Armstrong, Brown to move on to the finals where we will compare them with the best of the bottom half of the alphabetical list.
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