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Earlier in the year, we presented a series of reports on lazy portfolios from investing luminaries. We went on to pit them together to come out with an overall winner.

That was then, this is now. It's time to review their progress and look at how they have performed in 2010. This is the second article (see the first article here) where we look at the bottom half of the alphabet and see how they have done this year.

We created SIB (Simpler is Better) portfolios - one index fund for each asset class (ETFs are ideal for this) as a basic benchmark for each asset class portfolio. 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

Six Asset SIB

15%

8%

10%

6

Six Asset SIB (Popular ETFs)

12%

7%

10%

6

Five Asset SIB

11%

6%

11%

5

Four Asset SIB (REIT)

9%

8%

11%

4

Four Asset SIB (EEM)

11%

1%

10%

4

Three Asset SIB

6%

-1%

10%

3


We present four return data points:

  1. The five year annualized return based on a Tactical Asset Allocation strategy (TAA) - this gives a viewpoint on the longer term behavior
  2. The one year TAA return
  3. 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 are 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

Gibson

11%

6%

11%

7%

5

Green`s Gone Fishin

10%

9%

11%

13%

6

Lowell

13%

7%

13%

15%

3

Schultheis

6%

10%

14%

9%

3

Seven-12

13%

11%

14%

12%

7

Swensen Six

11%

10%

10%

13%

5

Wasik Nano Plan

9%

9%

13%

11%

4

  • Gibson's 5 Equal Asset Allocation Strategy comes from his Asset Allocation: Balancing Financial Risks book. In it, he outlined a simple yet diversified asset allocation model: putting equal amount of investment into 5 asset classes: US Equity, International Equity, REIT, Commodity, Fixed Income.
  • Alexander Green proposed this The Gone Fishin' Portfolio. Based on the book, the allocation is achieved using Vanguard low cost index funds (in Bogleheads forum, there is a discussion thread devoted to this portfolio)
  • Jim Lowell edits MarketWatch's ETF Trader, an investment letter employing a momentum-based exchange-traded-fund strategy for long-term investors. Large and small stocks, proposed his Sower's Growth Portfolio. This is a diversified portfolio of exchange-traded funds
  • Bill Schulthe is a former Smith Barney broker and author of "The Coffeehouse Investor"
  • Craig L. Israelsen is an Associate Professor at Brigham Young University where he teaches Personal and Family Finance to over 1,200 students each year. The Israelsen Seven Equally Weighted is aimed to protect the portfolio against losses
  • David Swensen, the Yale Endowment Manager, proposed an one size fit all model portfolio for individual investors. The major difference of this portfolio is the emphasis on international equities (including emerging market equities) and real estate
  • John Wasik is a professional journalist and author specializing in personal finance, the environment, investing and social issues. John has proposed a Nano plan investment portfolio, which employs a handful of indexes or ETFs to cover virtually the entire world of bond and stock markets

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 Return

SAA
1 Year Return

Original 1Year

Asset Classes

Lowell

13%

7%

13%

15%

3

Green`s Gone Fishin

10%

9%

11%

13%

6

Swensen Six

11%

10%

10%

13%

5

Seven-12

13%

11%

14%

12%

7

Wasik Nano Plan

9%

9%

13%

11%

4

Schultheis

6%

10%

14%

9%

3

Gibson

11%

6%

11%

7%

5

  • The second half of the group performed slightly better as a group than the first half. Lowell's return is the highest of the bunch - as a three asset class portfolio, that will be an interesting study as to whether this will continue in 2011
  • 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
  • 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
  • ETFs can be used to implement any of these strategies
  • We pick the top three - Lowell, Green and Swensen Brown to move on to the finals
  • The Seven-12 portfolio can feel hard done by because if it were in the top half of the draw, it would have made it through to the finals

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: End of the Year Review of Luminary Portfolios, Part II