Lazy Portfolios in 2019

The following table lists 2019 total returns for various examples of “lazy portfolios”.

Some of the portfolios (Coffeehouse and Coward’s) are designed as 60/40 stock/bond portfolios. Other portfolios (Armstrong Ideal and Swensen) are designed as 70/30 stock/bond portfolios. The two-fund, three-fund, and four-fund portfolios are scaled to similar stock/bond allocations. Prior to 2018, returns are derived from investments in investor share class Vanguard index funds. With the 2018 reduction of minimum investment for index fund admiral shares, we use admiral share returns starting in 2018.

 2019 total return

Portfolio60/4070/30
Two-fund19.63%21.45%
Three-fund20.29%22.22%
Ferri Core four20.18%22.09%
Vanguard Core four19.63%21.50%
Coffeehouse19.27%
Coward’s17.80%
Armstrong Ideal18.95%
Swensen19.38%21.50%

While the stock/bond allocations of the portfolios are similar, sub asset class allocations differ, accounting for difference in returns. The stock allocation differences include:

  • Value and small tilts: The Coffeehouse, Coward’s, and Armstrong Ideal portfolios employ value and small tilts to the US stock portfolio allocation. In 2019 growth stocks outperformed value stocks. Large cap stocks also outperformed small cap stocks.
  • REITs: The Ferri Core Four, Coffeehouse, Coward’s, Armstrong Ideal, and Swensen portfolios include an allocation to equity REIT index funds. In 2019 equity REITS slightly uunderperformed the overall US market.
  •  International stocks: Each of the portfolios include international stocks, but with differing allocation ranges. International weighting in the portfolios ranges from a low of 10 percent in the Coffeehouse portfolio to a high of 30 percent for the Armstrong Ideal portfolio. In 2019 US stocks outperformed international stocks. Within the market, emerging market stocks slightly underperformed developed market stocks.

Bond allocation differences include:

  • Bond maturities: The Coward’s and Armstrong Ideal portfolios employ short-term bonds in the bond allocation. All other portfolios use intermediate-term bonds. In 2019 intermediate-term bonds outperformed short-term bonds.
  • International bonds: The Vanguard four-fund portfolio has an allocation to hedged international bonds. All other portfolios invest in US bonds. In 2019 international bonds underperformed US bonds.
  • Inflation-indexed bonds: The Swensen portfolio is the only portfolio with an allocation to US inflation-indexed treasury bonds. In 2019 US intermediate nominal bonds and US inflation-indexed bonds provided nearly equal returns.

2019 asset class benchmark index returns

IndexReturn
CRSP Total US market30.84%
CRSP US Value25.85%
CRSP US Small27.35%
CRSP US Small Value22.35%
MSCI US REITS29.03%
FTSE Global All Cap ex US Index21.80%
US Bloomberg Barclays Aggregate8.87%
US Bloomberg Barclays 1-55.01%
Bloomberg Barclays US Trsy Inflat Prtcd Index8.43%
Bloomberg Barclays Global Aggregate ex-USD hedged8.06%

While the stock/bond allocations of the portfolios are similar, sub asset class allocations differ, accounting for difference in returns. The stock allocation differences include:

  • Value and small tilts: The Coffeehouse, Coward’s, and Armstrong Ideal portfolios employ value and small tilts to the US stock portfolio allocation. In 2019 growth stocks outperformed value stocks. Large cap stocks also outperformed small cap stocks.
  • REITs: The Ferri Core Four, Coffeehouse, Coward’s, Armstrong Ideal, and Swensen portfolios include an allocation to equity REIT index funds. In 2019 equity REITS slightly uunderperformed the overall US market.
  •  International stocks: Each of the portfolios include international stocks, but with differing allocation ranges. International weighting in the portfolios ranges from a low of 10 percent in the Coffeehouse portfolio to a high of 30 percent for the Armstrong Ideal portfolio. In 2019 US stocks outperformed international stocks. Within the market, emerging market stocks slightly underperformed developed market stocks.

Bond allocation differences include:

  • Bond maturities: The Coward’s and Armstrong Ideal portfolios employ short-term bonds in the bond allocation. All other portfolios use intermediate-term bonds. In 2019 intermediate-term bonds outperformed short-term bonds.
  • International bonds: The Vanguard four-fund portfolio has an allocation to hedged international bonds. All other portfolios invest in US bonds. In 2019 international bonds underperformed US bonds.
  • Inflation-indexed bonds: The Swensen portfolio is the only portfolio with an allocation to US inflation-indexed treasury bonds. In 2019 US intermediate nominal bonds and US inflation-indexed bonds  provided nearly equal returns.

Historical returns

The following tables provide historical asset class and portfolio returns.

Equity returns

Equity returns10yr15yr
CRSP Total Market13.47%9.07%
CRSP Large Cap13.50%9.16%
CRSP Large Value14.63%9.36%
CRSP Small Cap12.99%9.42%
CRSP Small Value12.79%9.10%
MSCI US Real Estate11.93%7.88%
FTSE Global All Cap ex US Index5.28%5.78%

Bond selection also differentiates returns.Thus, while both the Coward’s portfolio and the Armstrong Ideal portfolios employ short-term bond allocations, the Coward’s portfolio uses short-term investment grade bonds, which have provided higher returns over investment periods.The Swenson portfolio uses intermediate treasuries and treasury inflation protected bonds.³

Fixed-Income returns

TBMUS TreasuryTIPSST BondST Inv Grade
VBMFXVFITXVIPSXVBISXVFSTX
3yr3.98%2.93%3.05%3.21%2.70%
5yr2.94%2.29%2.35%2.37%2.37%
10yr3.59%3.20%3.15%2.19%2.62%
15yr4.03%3.89%3.55%2.94%3.16%

Portfolio returns

Portfolio returns are provided in the following tables. Keep in mind that past performance does not predict future performance.

60/40 allocation portfolios

Compound return

Portfolio3yr5yr10yr15yr
Two-fund 9.27% 6.50%6.97%
Three-fund9.67%7.04%8.13%6.82%
Vanguard Core four9.47%6.84%
Ferri Core four9.31%6.80%8.07%6.79%
Coffeehouse7.95%6.40%8.42%6.86%
Coward’s7.74%6.24%7.65%6.35%

Standard deviation

Portfolio3yr5yr10yr15yr
Two-fund13.74%10.52%8.28%
Three-fund12.88%10.46%8.03%10.83%
Vanguard Core four13.16%10.41%
Ferri Core four13.06%10.25%7.73%10.74%
Coffeehouse12.07%9.82%7.70%10.56%
Coward’s11.82%9.93%7.82%11.71%

Sharpe Ratio

Portfolio3yr5yr10yr15yr
Two-fund0.600.550.75
Three-fund0.650.630.990.55
Vanguard Core four0.640.61
Ferri Core four0.630.621.020.55
Coffeehouse0.550.601.050.55
Coward’s0.450.610.940.47

70/30 allocation portfolios

Compound return

Portfolio3yr5yr10yr15yr
Two-fund10.08%6.50%7.48%
Three-fund10.56%7.68%8.84%7.17%
Vanguard Core four10.30%7.40%
Ferri Core four10.14%7.41%8.77%7.13%
Armstrong Ideal8.30%6.15%7.28%6.29%
Swensen9.14%6.80%8.65%7.02%

Standard deviation

Portfolio3yr5yr10yr15yr
Two-fund15.39%12.10%9.51%
Three-fund14.79%11.67%9.22%12.57%
Vanguard Core four14.82%11.69%
Ferri Core four14.56%11.41%8.82%12.45%
Armstrong Ideal13.78%10.77%8.94%12.61%
Swensen13.95%10.79%8.08%11.97%

Sharpe Ratio

Portfolio3yr5yr10yr15yr
Two-fund0.610.601.07
Three-fund0.650.630.910.49
Vanguard Core four0.630.60
Ferri Core four0.630.620.980.52
Armstrong Ideal0.530.530.800.45
Swensen0.590.591.040.52

Notes

¹  The lone exception to using investor shares in return calculation is for the Developed markets asset class. We use the returns history of the former Vanguard Tax-Managed International fund, which after a 2013 merger, was rechristened the Vanguard Developed Market Index Fund. Historically, the fund issued what were essentially admiral shares to investors. For consistency, we use admiral share returns for this fund. Prior to 2018 we use investor share returns for indexed portfolios, given that meeting earlier admiral share requirements required large portfolios.

² Index return data sources are from the following list of Bogleheads® wiki pages:

  1. US total market index returns
  2. US large cap index returns
  3. US small cap index returns
  4. US equity REIT index returns
  5. Global ex US market index returns

³ Fund returns from worksheet derived from Simba spreadsheet.

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