John Wasik's Nano Portfolio Performance Scrutinized

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Includes: ADRE, AGG, BND, EEM, EFA, ICF, IWM, IYR, SPY, TIP, VEU, VNQ, VTI, VWO
by: MyPlanIQ

John Wasik has been a professional journalist and author for 30 years specializing in personal finance, the environment, investing and social issues. John has proposed a Nano plan investment portfolio which employs just a handful of index or ETFs to cover virtually the entire world of bond and stock markets. This portfolio is supposed to be rebalanced annually.

John Wasik presents a classic asset allocation strategy with simple buy and hold.

  • 20% in Vanguard Total Stock Market VIPERS (NYSEARCA:VTI) – alternatives: SPY, IWM
  • 20% in Vanguard Total International (VGTSX) – alternatives: EFA, VEU, EEM, VWO, ADRE
  • 20% in Vanguard REIT VIPERS (NYSEARCA:VNQ) – alternatives: IYR, ICF
  • 20% in iShares Lehman TIPS Bond (NYSEARCA:TIP)
  • 20% in iShares Lehman Aggregate Bond (NYSEARCA:AGG) – alternative: BND

Things to note about the portfolio:

  • With 40% in fixed income, this would be considered moderate risk
  • With VGTSX covering both international and emerging markets (albeit in one fund) this would be something between a 4 and 5 asset class portfolio
  • VGTSX is not an ETF; while VGTSX can easily be replaced by VEU (Vanguard FTSE All-World ex-US ETF) we will keep VGTSX because it has a longer history for back testing

We will make a comparison of the performance of this portfolio with

  • Rebalancing every month as opposed to every year
  • Simpler Is Better (SIB) portfolios we discussed in a previous article,
  • Tactically managing the portfolio

The first set of results compares strategic asset allocation performance. What we note is:

  • All portfolios suffer from the sharp downturn and is what is driving the increasing move towards a tactical allocation strategy
  • The lazy portfolio – rebalancing once a year performs as well as the monthly rebalancing
  • Wasik’s portfolio performance matches the 4 Asset SIB closely
  • The extra asset class in the 5 asset SIB enables it to outperform everything else

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Wasik Portfolio Compared to Strategic Asset Allocation

Wasik's portfolio against SIBs
Annualized Returns 1 year 3 years 5 years
Wasik original 16,75 1.22 5.03
Wasik monthly rebalance 16,27 0.18 4.39
4 SIB SAA 15.11 1.08 4.37
5 SIB SAA 15 2.35 6.33

The second set of results compares tactical asset allocation performance. What we note is:

  • The tactical asset allocation strategies clearly mitigate the downturn
  • Wasik’s portfolio performance matches the 4 Asset SIB closely when tactical asset allocation strategies are applied to both
  • The extra asset class in the 5 asset SIB enables it to outperform everything else

Wasik Portfolio Compared to Tactical Asset Allocation

Annualized Returns 1 year 3 years 5 years
Wasik TAA 16.53 8.47 10.43
4 SIB TAA 15.67 6.65 9.04
5 SIB TAA 12.62 8.13 11.35

Takeaways:

  • ETFs are a good vehicle for any portfolio and with increasing track record, it’s possible to demonstrate good historical performance
  • It is increasingly clear that deploying a tactical asset allocation strategy is key. All buy and hold strategies are going to suffer the same downturn properties and with choppy market conditions, minimizing downside risk is critical
  • With a buy and hold, there is little difference between monthly or annual rebalancing so you can be very lazy if you don’t mind the downside!
  • Five asset classes perform better in all cases – in the TAA case, the five asset SIB gives you an extra 6% a year since inception – doubling the asset base every decade

Disclosure: No positions