Brett Arends's "Perfect Portfolio" Comments?
Brett Arends's "Perfect Portfolio" Comments?
I am curious to get everyone's take on MarketWatch's Brett Arends's article on the "Perfect Portfolio."
Link to the article is here >>>> http://www.marketwatch.com/story/is-thi ... 2014-06-12
Thanks!
Link to the article is here >>>> http://www.marketwatch.com/story/is-thi ... 2014-06-12
Thanks!
Re: Brett Arends's "Perfect Portfolio" Comments?
Perfect if you've got a time machine. Otherwise ignore the noise and stick with a simple ~3 fund portfolio.
Re: Brett Arends's "Perfect Portfolio" Comments?
He needs to extend the numbers back to 1990 or so to get the years when real estate and commodities were not hot. I am also guessing the last 15 years have been above average for min volatility. Personally I think sticking 2/3s of your stocks (or 3/5s if you count reits) in international is a bit much for me but it probably doesn't matter.
Re: Brett Arends's "Perfect Portfolio" Comments?
The conventional wisdom is that a portfolio containing stocks is safe and guaranteed to do well? What? Strawman maybe?Most people in my position follow a third approach, and put their investments in a traditional “balanced portfolio” of stock and bond index funds, which conventional wisdom says is safe and guaranteed to do well. But this is where I have another problem.
I know the conventional wisdom is full of nonsense.
Re: Brett Arends's "Perfect Portfolio" Comments?
It's usually hedged a bit, but there are many who appear to believe that if you hold stocks long enough you'll do well - the risk is the psychological risk of selling low, not the economic risk of long-term bad performance.Ice-9 wrote:The conventional wisdom is that a portfolio containing stocks is safe and guaranteed to do well? What? Strawman maybe?Most people in my position follow a third approach, and put their investments in a traditional “balanced portfolio” of stock and bond index funds, which conventional wisdom says is safe and guaranteed to do well. But this is where I have another problem.
I know the conventional wisdom is full of nonsense.
Brett Arend's 10 fund "All-Weather" portfolio
[Thread merged into here, see below. --admin LadyGeek]
My first post on the forum. Brett Arend's column today (6/13) outlines the result of his quest for the all weather portfolio. His article is posted on marketwatch http://www.marketwatch.com/story/is-thi ... 2014-06-12. He compares it against a 60% all world, 40% intermediate bond and Sp500 going back to 98. It’s 10% each in the following 10 asset classes:
U.S. “Minimum Volatility” stocks
International Developed “Minimum Volatility” stocks
Emerging Markets “Minimum Volatility” stocks
Global natural-resource stocks
US Real Estate Investment Trusts
International Real Estate Investment Trusts
30-Year Zero Coupon Treasury bonds
30-Year TIPS
Global bonds
2-Year Treasury bonds (cash equivalent)
Any thoughts?
Chris
My first post on the forum. Brett Arend's column today (6/13) outlines the result of his quest for the all weather portfolio. His article is posted on marketwatch http://www.marketwatch.com/story/is-thi ... 2014-06-12. He compares it against a 60% all world, 40% intermediate bond and Sp500 going back to 98. It’s 10% each in the following 10 asset classes:
U.S. “Minimum Volatility” stocks
International Developed “Minimum Volatility” stocks
Emerging Markets “Minimum Volatility” stocks
Global natural-resource stocks
US Real Estate Investment Trusts
International Real Estate Investment Trusts
30-Year Zero Coupon Treasury bonds
30-Year TIPS
Global bonds
2-Year Treasury bonds (cash equivalent)
Any thoughts?
Chris
Re: Brett Arends's "Perfect Portfolio" Comments?
No one has really commented on the actual portfolio yet. So I'll take a shot.
(1) Low-volatility strategies are just small and value strategies in disguise. They are called "low-volatility funds" instead of "mid cap value funds" for marketing purposes.
(2) Bill Bernstein suggests dedicated allocation to natural resource producers in his latest book. Investors who own such companies have historically traded lower returns for greater inflation protection. That may or may not be a good trade.
(3) There is no good place to put international REITs from a tax management perspective. They are also more expensive to own and less unique than US REITs.
(4) I like the use of high quality, long-term bonds. I have been thinking about holding a small bond allocation lately and have been leaning towards splitting it between 30 year treasuries and 30 year tips.
(5) Why the heck does Arend have an allocation to global bonds? The rest of his bonds are risk-free government bonds. If your bonds have no credit risk, then you don't need diversification. This is needless expense and complexity.
(1) Low-volatility strategies are just small and value strategies in disguise. They are called "low-volatility funds" instead of "mid cap value funds" for marketing purposes.
(2) Bill Bernstein suggests dedicated allocation to natural resource producers in his latest book. Investors who own such companies have historically traded lower returns for greater inflation protection. That may or may not be a good trade.
(3) There is no good place to put international REITs from a tax management perspective. They are also more expensive to own and less unique than US REITs.
(4) I like the use of high quality, long-term bonds. I have been thinking about holding a small bond allocation lately and have been leaning towards splitting it between 30 year treasuries and 30 year tips.
(5) Why the heck does Arend have an allocation to global bonds? The rest of his bonds are risk-free government bonds. If your bonds have no credit risk, then you don't need diversification. This is needless expense and complexity.
Re: Brett Arend's 10 fund "All-Weather" portfolio
Super curious about thoughts on this too.
I did a quick comparison of some "minimum volatility" ETFs and corresponding straight index ETFs (iShares - IVV/USMV, IEFA/EFAV, IEMG/EEMV). As expected, these lower-volatility funds generated lower-returns as well. I didn't check the technical volatility, but looking at just the comparison charts over the last three years, they look just about as volatile as the index ETFs.
Maybe the broader diversification makes whole-market type ETFs just as low-volatility as these "low volatility" ETFs?
I did a quick comparison of some "minimum volatility" ETFs and corresponding straight index ETFs (iShares - IVV/USMV, IEFA/EFAV, IEMG/EEMV). As expected, these lower-volatility funds generated lower-returns as well. I didn't check the technical volatility, but looking at just the comparison charts over the last three years, they look just about as volatile as the index ETFs.
Maybe the broader diversification makes whole-market type ETFs just as low-volatility as these "low volatility" ETFs?
Re: Brett Arend's 10 fund "All-Weather" portfolio
A 15 year backtest is really unimpressive IMO.
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Re: Brett Arend's 10 fund "All-Weather" portfolio
The "all weather portfolio" looks great since 1998, the last 16 years. It includes 40% bonds (which since 1998 have been in a historic bull market as interest rates and inflation consistently decreased to current historic low levels) plus 20% REITS (which likewise have been in an unprecedented bull run relative to stocks since 1998) and only 30% stocks (reducing the asset class which has suffered the greatest 2 bear markets since the Great Depression during those years). In short he is retrospectively cherry-picking asset classes and setting up time periods in which his special sauce worked. The likelihood the "all weather portfolio" will continue this outperformance relative to the S&P 500 and a balanced 60/40 portfolio over the next 10 -20 years is in my opinion zero, not 5% but zero. I believe it is a marketing tool aimed at unsophisticated and inexperienced investors in that it suggest a obvious fallacy: outsized high returns do not fit nicely with outsized risk control in "all weather." There is a tradeoff between risk and return. His special sauce only works if you cherry pick the asset classes and dates in retrospect. His charts won't look so nice after the next 16 years.
Garland Whizzer
Garland Whizzer
Re: Brett Arend's 10 fund "All-Weather" portfolio
http://www.bogleheads.org/forum/viewtop ... st=2089184
csimpson wrote:My first post on the forum. Brett Arend's column today (6/13) outlines the result of his quest for the all weather portfolio. His article is posted on marketwatch http://www.marketwatch.com/story/is-thi ... 2014-06-12. He compares it against a 60% all world, 40% intermediate bond and Sp500 going back to 98. It’s 10% each in the following 10 asset classes:
U.S. “Minimum Volatility” stocks
International Developed “Minimum Volatility” stocks
Emerging Markets “Minimum Volatility” stocks
Global natural-resource stocks
US Real Estate Investment Trusts
International Real Estate Investment Trusts
30-Year Zero Coupon Treasury bonds
30-Year TIPS
Global bonds
2-Year Treasury bonds (cash equivalent)
Any thoughts?
Chris
Re: Brett Arends's "Perfect Portfolio" Comments?
^^^ FYI - I merged the csimpson's thread into here (Welcome!).
Re: Brett Arend's 10 fund "All-Weather" portfolio
Please post Brett's definition of "minimum volatilty" stocks. Generally, in the world that actual investors inhabit, minimum volatilty would portend lower long term total investment return.csimpson wrote: Brett Arend's column today (6/13) outlines the result of his quest for the all weather portfolio. His article is posted on marketwatch http://www.marketwatch.com/story/is-thi ... 2014-06-12. He compares it against a 60% all world, 40% intermediate bond and Sp500 going back to 98. It’s 10% each in the following 10 asset classes:
U.S. “Minimum Volatility” stocks
International Developed “Minimum Volatility” stocks
Any thoughts?
Chris
Last edited by kenner on Fri Jun 13, 2014 6:34 pm, edited 1 time in total.
Re: Brett Arend's 10 fund "All-Weather" portfolio
He should have called it the "yesterday's weather" portfolio.garlandwhizzer wrote: In short he is retrospectively cherry-picking asset classes and setting up time periods in which his special sauce worked. The likelihood the "all weather portfolio" will continue this outperformance relative to the S&P 500 and a balanced 60/40 portfolio over the next 10 -20 years is in my opinion zero, not 5% but zero.
Re: Brett Arends's "Perfect Portfolio" Comments?
Thanks for the welcome and insightful comments. Going back further in time would have been instructive. Arends doesn't define US "Minimum Volatility" stocks in his article. He leaves it at "The portfolio takes advantage of research showing that "riskier" stocks have tended to produce worse returns over time than higher quality or less volatile stocks, and for sounds reasons". That's it. So he leaves it up to guessing what he means.
Re: Brett Arends's "Perfect Portfolio" Comments?
You might like reading the wikipedia page on the low volatility anomaly. Stocks with less volatility have returned less than stocks with more volatility as one would expect. But it turns out that low volatility stocks have higher risk-adjusted returns (that is, they have a higher Sharp ratio).csimpson wrote:Thanks for the welcome and insightful comments. Going back further in time would have been instructive. Arends doesn't define US "Minimum Volatility" stocks in his article. He leaves it at "The portfolio takes advantage of research showing that "riskier" stocks have tended to produce worse returns over time than higher quality or less volatile stocks, and for sounds reasons". That's it. So he leaves it up to guessing what he means.
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Re: Brett Arends's "Perfect Portfolio" Comments?
Anything with 10 parts misses the mark on one element of perfection that is important to me: simplicity.
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Re: Brett Arends's "Perfect Portfolio" Comments?
I think he'd be better off with Scott Burns's Margarita Portfolio- one third each in Total Stock Market, Total International, and TIPS.
Re: Brett Arends's "Perfect Portfolio" Comments?
This is not backed by the data. M* has these funds as large blend that tilt growth.berntson wrote:No one has really commented on the actual portfolio yet. So I'll take a shot.
(1) Low-volatility strategies are just small and value strategies in disguise. They are called "low-volatility funds" instead of "mid cap value funds" for marketing purposes.
+1 on the rest. Your LTGB comment mirrors my own thinking. Long term bonds seems to be as good as it gets for diversification. We all know there will be another recession some day. We know exactly what the Fed will do. In isolation, these LTGB may not be good as the Fed may lower from much higher rates (lower bond prices). But if rates are higher it is likely our other assets have done well ... no?.?.berntson wrote: (2) Bill Bernstein suggests dedicated allocation to natural resource producers in his latest book. Investors who own such companies have historically traded lower returns for greater inflation protection. That may or may not be a good trade.
(3) There is no good place to put international REITs from a tax management perspective. They are also more expensive to own and less unique than US REITs.
(4) I like the use of high quality, long-term bonds. I have been thinking about holding a small bond allocation lately and have been leaning towards splitting it between 30 year treasuries and 30 year tips.
(5) Why the heck does Arend have an allocation to global bonds? The rest of his bonds are risk-free government bonds. If your bonds have no credit risk, then you don't need diversification. This is needless expense and complexity.
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
Re: Brett Arends's "Perfect Portfolio" Comments?
+1berntson wrote:You might like reading the wikipedia page on the low volatility anomaly. Stocks with less volatility have returned less than stocks with more volatility as one would expect. But it turns out that low volatility stocks have higher risk-adjusted returns (that is, they have a higher Sharp ratio).csimpson wrote:Thanks for the welcome and insightful comments. Going back further in time would have been instructive. Arends doesn't define US "Minimum Volatility" stocks in his article. He leaves it at "The portfolio takes advantage of research showing that "riskier" stocks have tended to produce worse returns over time than higher quality or less volatile stocks, and for sounds reasons". That's it. So he leaves it up to guessing what he means.
But to answer your question ... USMV, EFAV and EEMV.
I do like the use of MV over low volatility which heavily tilts interest sensitive sectors/
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
- Rick Ferri
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Re: Brett Arends's "Perfect Portfolio" Comments?
There is no such thing as a perfect portfolio. There is only a portfolio that is right for you, conceived for your needs, your understanding of risk, your time horizon, and that you'll hold on to during all market conditions.
Philosophy among Bogleheads' is universal; strategy is personal.
We all believe in low-fess, low turnover, diversification, index investing benefits, etc. How we apply those beliefs in our own lives in our own investment portfolio is strategy. Whichever strategy you chose has to be held for the long-term or it won't work. That's called discipline, or as Jack Bogle puts it, "Stay the Course".
Grasp the philosophy, implement a strategy, be disciplined. Those are the keys to successful Boglehead investing.
Rick Ferri
Philosophy among Bogleheads' is universal; strategy is personal.
We all believe in low-fess, low turnover, diversification, index investing benefits, etc. How we apply those beliefs in our own lives in our own investment portfolio is strategy. Whichever strategy you chose has to be held for the long-term or it won't work. That's called discipline, or as Jack Bogle puts it, "Stay the Course".
Grasp the philosophy, implement a strategy, be disciplined. Those are the keys to successful Boglehead investing.
Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.
Re: Brett Arends's "Perfect Portfolio" Comments?
Basically what Rick said above.
Perfect as far as returns go, will depend on the time series you look at. So unless you are actively managing your exposure to different sectors (individual stocks, the possibilities are to many to even have this discussion) you will never have the perfect portfolio at all points in time.
Perfect as far as returns go, will depend on the time series you look at. So unless you are actively managing your exposure to different sectors (individual stocks, the possibilities are to many to even have this discussion) you will never have the perfect portfolio at all points in time.
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Re: Brett Arends's "Perfect Portfolio" Comments?
Thank you, Mr. Ferri for this insightful summary of the Bogleheads approach.Rick Ferri wrote:There is no such thing as a perfect portfolio. There is only a portfolio that is right for you, conceived for your needs, your understanding of risk, your time horizon, and that you'll hold on to during all market conditions.
Philosophy among Bogleheads' is universal; strategy is personal.
We all believe in low-fess, low turnover, diversification, index investing benefits, etc. How we apply those beliefs in our own lives in our own investment portfolio is strategy. Whichever strategy you chose has to be held for the long-term or it won't work. That's called discipline, or as Jack Bogle puts it, "Stay the Course".
Grasp the philosophy, implement a strategy, be disciplined. Those are the keys to successful Boglehead investing.
Rick Ferri
This post is so good, I propose that it should be enshrined somewhere in the Bogleheads Wiki.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
Re: Brett Arends's "Perfect Portfolio" Comments?
First, nothing in life is perfect, this being another in an endless mix of "lazy" portfolios. It appears to be back casted to work and has no guarantees going forward. The strategy could easily be improved .... instead of rebalance on December 30th, creating tax liability due by April 15th, rebalance January 2nd, changing the due date for that tax liability by a year.hirlaw wrote:I am curious to get everyone's take on MarketWatch's Brett Arends's article on the "Perfect Portfolio."
Link to the article is here >>>> http://www.marketwatch.com/story/is-thi ... 2014-06-12
Thanks!
Re: Brett Arends's "Perfect Portfolio" Comments?
He knows the conventional wisdom is full of nonsense and his "wisdom" is equally full of nonsense.