After examining 42,504 different combinations of 20 different assets using data going back to 1970, he found that the most efficient portfolios usually included small-cap value stocks, long-term Treasuries, and gold, though some portfolios that didn't include all or even any of these assets also performed well.
Many here are quick to point out potential problems with all three of these assets, especially gold, but Tyler makes some great points, one of which I'm quoting below.
The above is difficult for many to realize. Humans are not well equipped to comprehend how multiple divergent assets can work together to create a desirable outcome when one (or more) by itself produces a very undesirable outcome.So two things can be true at the same time:
1. An asset is a critical component in many of the most desirable portfolios.
2. The same asset is disastrously undesirable when studied only in isolation.
Do you like salt on your food? Can you eat an entire box of it in one sitting without getting extremely sick? Same concept.
Tyler also showed that it was far from necessary to go 'all-in' with the 'three secret ingredients' to substantially improve portfolio efficiency. For instance, he showed that a portfolio with 70% large-cap blend (i.e., S&P 500 or TSM), 10% SCV, 10% LTT, and 10% gold had significantly higher 15 year baseline returns and a significantly lower Ulcer index.
Another great point Tyler made was below.
Thoughts?But it’s also possible you’re resistant to certain portfolio ideas simply because they don’t match your expectations about how investing is supposed to work. There’s nothing inherently wrong with that, and there are all types of asset allocations suitable for different types of people. But by opening your mind to ideas that don’t always make sense on the surface, perhaps you’ll stumble into a new paradigm that changes the way you think about investing altogether.