8 Advantages of the Gone Fishin' Portfolio

When I speak about my Gone Fishin' portfolio at financial conferences around the nation, I often tell investors not to watch MSNBC, CNBC or any of the other investment networks.

Members of the audience sometimes find this comical - or even hypocritical - since I'm on these networks occasionally myself. But if you watch these channels regularly, I promise it will make you dumber and poorer.

Why? The underlying premise of these networks is that there is constant breaking news that you need to react to immediately.

Oil prices are up. What should you be buying? The Fed has cut rates a quarter point. How should you respond? Warren Buffett says the recession will last longer than expected. What should you be selling?

The financial media parades one so-called "expert" after another in front of you. Each offers different opinions on the economy and the markets. Is that because you'll profit by reacting to every government statistic, earnings release or economic forecast?

Of course not. The circus of activity is there to attract viewers. That keeps advertisers happy and the networks' bottom line growing. But as a viewer and investor, it costs you money. 

Wall Street and the financial press spew out so much analysis and so many opinions each week, most investors lose sight of the big picture.  And that's unfortunate…

6 Factors That Determine Your Investment Portfolio Value

In essence, there are only six factors that determine the long-term value of your investment portfolio.

• How much you save.
  
  
• How long your investments compound.
  
  
• Your asset allocation. (How you divide your portfolio between stocks, bonds and other investments.)
  
  
• Those assets' annual return.
  
  
• How much you pay in annual expenses.
  
  
• How much you pay in taxes.

That's it. Whether you're investing $10,000 or $10 million, these six factors will determine your eventual net worth.

Of all these factors, the only one you cannot control is the fourth. You cannot know with any certainty what stocks or bonds will return from one year to the next. 

More sophisticated investors often say, "Well, of course no one knows for certain, but you have to guess."

No, you don't. And you shouldn't.

Rather than guessing or pretending you have answers to unanswerable questions - like what the stock market will do this year or where interest rates are going - you can use an investment portfolio philosophy that allows you to capitalize on the uncertainty inherent in the markets.

The Gone Fishin' Portfolio

For example, five years ago I created "The Gone Fishin' Portfolio" for The Oxford Club, the world's largest financial fellowship, where I serve as Investment Director.

The portfolio is breathtakingly simple. All we do is divide our money among different asset classes - like stocks, bonds, precious metals and real estate investment trusts - and then rebalance once a year to bring each class back to our original percentage.

It works like a charm. The portfolio has beaten the S&P 500 every year, while taking much less risk than being fully invested in stocks.

We also back-tested the system through the bear market of 2000-2002. Again, it beat the market every single year.

That's what you want, an investment portfolio that holds up well when the markets are down - and sprints ahead when the market is moving higher.

Since its inception, The Gone Fishin' Portfolio has compounded at 17.3% a year. And this is an extremely risk-averse approach, making it the perfect home for what I call your "serious money."

The 8 Advantages of The Gone Fishin' Portfolio

There are eight primary advantages to using The Gone Fishin' Portfolio…

• It prevents you from being too conservative or too aggressive, so your investments neither tread water nor blow up due to crazy risk-taking.
  
  
• It eliminates shortfall risk, the risk that inflation will destroy your purchasing power over the long haul. (It keeps your investment portfolio from kicking the bucket before you do.)
  
  
• It requires no economic forecasting or market timing.
  
  
• It eliminates individual security risk. (There is no chance of holding a WorldCom, Enron or any individual stock or bond that causes your investment portfolio to crater.)
  
  
• It is exceptionally cost effective. You will do a complete end run around Wall Street, paying nothing in brokerage commissions, planning fees, sales loads, or 12b-1 fees.
  
  
• It is highly tax efficient, allowing you to defer capital gains taxes each year. (That keeps your net returns higher.)
  
  
• It is based on the only investment strategy ever to win the Nobel Prize in Economics.
  
  
• And, finally, it is so simple to implement, you can do it yourself in less than 20 minutes a year. (The rest of the time you are encouraged to travel, play golf, or "go fishin'.")

How does one investment system do all these things? I don't have the space to tell you in this column. But I wrote a book - out this week - that explains exactly how it's done.

It's called "The Gone Fishin' Portfolio" - and the subtitle says it all: "Get Wise, Get Wealthy… and Get On With Your Life."

This book is the distillation of the best things I've learned in 23 years as a research analyst, portfolio manager and investment advisor. (As I sometimes tell my readers, I've made the dumb mistakes so you don't have to.) I can save you a lot of time - and a boatload of money - by showing you how to profit from my hard-earned experience.

The Best Reason For Using the Gone Fishin' Portfolio

However, I still haven't told you the best reason to use The Gone Fishin' Portfolio. The high returns and low risk are only the beginning.

You see, money is not your most precious resource. It's time. Your time is limited, perishable, irreplaceable and unlike money, cannot be saved. 

The real beauty of the Gone Fishin' Portfolio is it allows you to redirect your time to high-value activities, whether it's work you enjoy, time spent pursuing your favorite activities, or just relaxing with your friends and family.

The Gone Fishin' Portfolio gives you an excellent opportunity to grow your wealth. Nothing offers better odds of long-term success. 

But, more importantly, it guarantees you peace of mind and the time to devote to the people and pastimes you love. 

Perhaps that is what recommends it most.

Comments

[Ellen:]

So, what are you selecting as your asset allocation for the next year?
Thanks for your thoughts.

2008 Sep 11 11:26 AM

[jiyoung6059:]

These's a fair bit of hype with the Gone Fishin' Portfolio. I just got an email from Dr. Mark Skousen of Investment U./Oxford Club touting this book and portfolio. He purports to have "uncovered" favorable comments on this idea from the likes of Porter Stansberry, Steve S., Bill Bonner, etc.; in fact, these people all are part of the same organization and hype each others' newsletters, books, etc., without, of course, disclosing the relationship between them. More important, appropos of the GF portfolio, they tout the returns of the strategy from 2000 to date, but neglect to tell you what the returns would have been with a more complete investment record. I extended the hypothetical returns going back to 1993 using the same Vanguard funds A. Green recommends (and used an index to substitute for unavailable returns for Vanguard funds that haven't been around long enough). According to my calculations, the GF portfolio did indeed beat the S&P 500 every year from 1999 through 2007, but with an arithmetic average annual return of 11.89%, not the 17.3% they claim. BUT from 1993--as far back as I went--through 1998, the GF portfolio UNDERPERFORMED the SPX every year except for 1993 by an average of 9.43% per year!! Considering the entire 15 year period, the GF portfolio UNDERPERFORMED the S&P 500 by about 35 basis points per year on average. I haven't yet read Green's book, but it is suspicious that he seems to ignore the longer record which does not seem to indicate this strategy will beat an index portfolio. Finally, there's certainly nothing new or revolutionary in the GF approach--many books were written in past years espousing a similar strategy. To cite just one, "How to Retire Early and Live Well," by Gillette Edmunds (2000).

2008 Sep 24 11:18 PM