Seeking Alpha

MyPlanIQ's  Instablog

MyPlanIQ
1,443 Followers
5 Following
Send Message
MyPlanIQ.com is the only web application that offers advanced asset allocation strategies customized to a wide range of retirement and taxable investment plans such as 401(k), IRA and brokerage accounts. The unique key advantages of MyPlanIQ.com are 1. Superior investment strategies with high... More
My company:
LTI Systems, Inc.
My blog:
MyPlanIQ News and Articles
  • Gibson's 5 Lazy Portfolio Returns Measured and Compared 0 comments
    Oct 6, 2010 2:26 PM | about stocks: ACWI, ACWX, ADRE, AGG, BIV, BLV, BND, BSV, BWX, CFT, CIU, CSJ, DBC, DBV, DIA, DVY, EDV, EEM, EFA, EFG, EFV, EMB, ETF, GLD, GOOG, GSG, GXC, HPQ, HYG, ICF, IEF, IEI, IFGL, IGOV, IGR, IJH, IJJ, IJK, IJR, IJS, IJT, IVE, IVV, IVW, IWB, IWC, IWD, IWF, IWM, IWN
    Gibson's 5 Equal Asset Allocation Strategy comes from Roger Gibson’s widely read "Asset Allocation: Balancing Financial Risks." In it, Gibson 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. For Fixed Income, he further outlined a 70%/30% US domestic/international bond investment.

    The most noticeable feature in this model portfolio is its heavy weight into commodity asset class.

    Recent studies suggest that managed futures in commodity could be an excellent diversifier with equity like positive returns. The recent representative study is a research paper by Yale Professors.  


    Fund Weight Ticker ETF
    US Equity 20% VFINX VTI
    International Equity 20% VDMIX EFA
    Real Estate 20% VGSIX RWX
    Commodity 20% CRSAX DBC
    US Bonds 14% VBMFX AGG
    International Bonds 6% OIBAX BWX
     
    This is a well diversified four asset class portfolio with an aggressive profile. It is a little unusual to have commodities as an asset class before emerging markets,

    This lazy portfolio will be compared with the same funds with a balanced (i.e. all equity asset classes equally weighted) buy and hold with monthly rebalancing and the ability to rotate styles within the asset classes. This will look at what difference alternative fund balances contribute to the results. We will look at a Five asset class SIB with Strategic Asset Allocation that will shed light on the benefits of extra asset classes.

    Then we will compare the impact of tactical asset allocation on the Aronson funds and also a five asset class SIB to examine the returns delivered by a TAA strategy applied to Aronson and broader funds.

    We would expect the performance of this portfolio to match the 5 asset SIB reasonably closely as they have the same weights.

    Comparison of Gibson 5 Results against SIBs

    full comparison 
    Annual returns 1 year 3 years 5 yea
    Gibson Equal 5 Original 9 -5 0
    Gibson Five_SAA 15 -6 5
    Five SIB_SAA 18 -1 7
    Five SIB_TAA 14 7 14
    Gibson Five_TAA 16 6 11
     
    Notable elements of the results
     
    The original lazy portfolio has relatively low volatility but the returns are disappointing. Using the same funds with a more traditional spread gives a better return. This is one data point that balanced assets make a better portfolio. The five asset class SIB has even better results. The five asset SIB has emerging markets rather than commodities which has been a better selection in recent history. From previous articles a six asset SIB will also have good returns and that includes both emerging markets and commodities.
     
    Tactical asset allocation delivers the best results and, again, the asset class selection of the SIB beats the Gibson choice (and again the six SIB which combines both is even better).
     
    The tradeoff is being involved monthly with your portfolio to squeeze out better returns compared to an annual review; once a month seems a reasonable level of effort to put extra money in your pocket. The spread of 5 year returns is around 14% which is significant in terms of having a bigger nest egg.
     
    Takeaways
    • Tactical Asset Allocation reduces downside risk and that wins in the current uncertain environment
    • The Gibson five lazy portfolio has returns that can be improved upon
    • ETF’s can readily be used to implement these portfolios with good performance
    • A 14% spread means that it’s worth looking at alternatives


    Disclosure: No Positions

    Disclosure: No Positions
    Themes: Portfolio-Building with ETFs, Closed-End Funds, Commodity ETFs, Currency ETFs, Developed Market ETFs Stocks: ACWI, ACWX, ADRE, AGG, BIV, BLV, BND, BSV, BWX, CFT, CIU, CSJ, DBC, DBV, DIA, DVY, EDV, EEM, EFA, EFG, EFV, EMB, ETF, GLD, GOOG, GSG, GXC, HPQ, HYG, ICF, IEF, IEI, IFGL, IGOV, IGR, IJH, IJJ, IJK, IJR, IJS, IJT, IVE, IVV, IVW, IWB, IWC, IWD, IWF, IWM, IWN
Back To MyPlanIQ's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Full index of posts »
Latest Followers

StockTalks

  • Learn From The Master: The Goldman Sachs 401K Plan Provides Stellar Investment Choices http://stks.co/3LLJ $GS $SPY $AGG $DBC
    Apr 13, 2012
  • barrons 10/13: PIMCO Taborsky: traditional asset allocation misguided. Should allocate based on risk factors. http://bit.ly/9lEKS.
    Oct 4, 2009
  • Buffett's metric: fairvalued, Shiller's: overvalued: http://bit.ly/2TLVH2. Another correction for sure.
    Sep 24, 2009
More »

Latest Comments


Most Commented
Posts by Themes
Bond ETFs, ETF Analysis, ETF Commentary, ETFs, Investing for income, 401k, 401K, 401K. retirement, 529, Alpha Dynamics, American Airlines, AmericFedex, Annuities, armstong ideal index, Armstrong, Aronson, Asia, asset , Asset allocation, asset allocation, Asset Allocation, Asset Allocation and Portfolio Strategy, Asset Allocation Using ETFs, asset class, asset outlooks, Bernstein, Bond ETFs, Bond Investment, Bond Plans, Bond Strategy, bonds, Bonds, Browne, Buffet, buffet, Buffet indicators, Buy and hold, buy and hold, buy and hold strategy, Chevron, Closed-End Funds, College saving, Commission Free, Commission Free ETFs, Commodities, Commodity, Commodity ETFs, Commodity Strategies, Commodity Strategy, Commodties,
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.