The three biggest questions most investors face are 1) How much of their portfolio they place in risky assets, and 2) how they allocate their portfolio across those assets, and 3) if they use risk management or other active strategies. (Well, #1 is really how much they pay in fees and taxes but let’s ignore that area for now.)
I got a ton of emails asking me “what do you think of XXX allocation?”. Everything from Swensen, to Tobias, to the Texas Double Down.
Some popular allocations (or “lazy portfolios”) are here and here. I typed up a few of the more famous ones at the end of the post.
Anyways, I get a lot of emails asking what I think of the Permanent Portfolio (25% US Stocks, 25% Cash (T-Bills), 25% US Long Bonds, 25% Gold) and what I think of applying risk management or market timing to the portfolio.
Below is the equity curve of the buy and hold, timing on the portfolio, and the S&P500 (all total returns rebalanced monthly). Even though PERM is 50% in bonds and cash the timing helps due to the highly volatile gold and US equity components.
And because I know I am going to get the question, here is the IVY allocation with timing compared to the PERM allocation with timing. The point of this post is not that there is an ideal allocation (well there is of course but it is unknowable as the future is inherently uncertain), but rather that risk management has worked across various allocations. One of the difficulties with the PERM portfolio, certainly today, is that there is a very high allocation to cash (yielding 0%) and long bonds (yielding 3.8%) – which implies that half of your portfolio is targeted to return less than 2%!
Some other famous allocations:
Swensen Portfolio (Source: Unconventional Success, 2005)
30% US Stocks
20% REITs
20% Foreign Stocks
15% US Govt Short Term
15% TIPS
El-Erian Portfolio (Source: When Markets Collide, 2008)
15% US Stocks
15% Foreign Developed Stocks
12% Foreign Emerging Stocks
7% Private Equity
5% US Bonds
9% International Bonds
6% Real Estate
7% Commodities
5% TIPS
5% Infastructure
8% Special Situations
Arnott Portfolio (Source: Liquid Alternatives: More Than Hedge Funds, 2008)
10% US Stocks
10% Foreign Stocks
10% Emerging Market Bonds
10% TIPS
10% High Yield Bonds
10% US Govt Long Bonds
10% Unhedged Foreign Bonds
10% US Investment Grade Corporates
10% Commodities
10% REITs
Permanent Portfolio (Source: Fail-Safe Investing, 1981 )
25% US Stocks
25% Cash (T-Bills)
25% US Long Bonds
25% Gold
Andrew Tobias Portfolio (Similar to Bill Shultheis & Scott Burns’s 3 Fund portfolios)
33% US Stocks
33% Foreign Stocks
33% US Bonds
William Bernstein Portfolio (Source:The Intelligent Asset Allocator, 2000 )
25% US Stocks
25% Small Cap Stocks
25% International Stocks
25% Bonds
Ivy Portfolio (Source: Ivy Portfolio, 2009)
20% US Stocks (S&P 500)
20% Foreign Stocks(MSCI EAFE)
20% US 10Yr Gov Bonds
20% Commodities (GSCI)
20% Real Estate (NAREIT)
