Are the markets making you uncomfortable? These Simple, Inexpensive Retirement Portfolios Hold Up Well

Not everyone is having a terrible year.

While stocks and bonds have all fallen since Jan. 1, a few simple, inexpensive, and weatherproof portfolios are doing much better at preserving their owners’ retirement savings.

Better yet, anyone can copy them using a handful of exchange-traded funds or low-cost mutual funds. Anybody.

You don’t need to be clairvoyant and predict where the market is going.

You don’t need to pay for high-fee hedge funds (which usually don’t work anyway).

And you don’t need to miss out on long-term gains by just having cash.

Fund manager Doug Ramsey’s simple “All Asset No Authority” portfolio has lost half of a standard “balanced” portfolio since Jan. 1, and a third less than the S&P 500. The even simpler equivalent of Meb Faber resisted even better.

And when combined with a very simple market timing system that anyone can do from home, these portfolios almost break even.

This, in a year when almost everything fell, including the S&P 500 SPX,
Nasdaq Composite COMP,
AAPL Apple,
Amazon AMZN,
Meta FB,
Tesla TSLA,
bitcoin BTCUSD
(I know, shocking, right?), small company stocks, real estate investment trusts, high yield bonds, investment grade bonds and US Treasuries.

It’s not just the benefit of hindsight, either.

Ramsey, the chief investment strategist at Midwest fund management firm Leuthold Group, has for years overseen what he calls the “All Asset No Authority” portfolio, which is sort of the portfolio you would have if you tell your pension fund manager to hold all major asset classes and makes no decisions. It is therefore made up of equal amounts in 7 assets: large US company stocks, small US company stocks, US real estate investment trusts, 10-year US Treasury bonds, international stocks (in developed markets such as Europe and the Japan), raw materials and gold. .

Any of us could copy this portfolio with 7 ETFs: For example the SPDR S&P 500 ETF trust SPY,
iShares Russell 2000 ETF IWM,
Vanguard Real Estate VNQ,
iShares 7-10 Year IEF Treasury Bonds,
Vanguard FTSE Developed Markets ETF VEA,
Invesco DB Commodity Index ETF DBC,
and SPDR Gold Trust GLD.
These are not specific fund recommendations, just illustrations. But they show that this wallet is accessible to everyone.

Faber’s portfolio is similar, but excludes gold and US small company stocks, leaving 20% ​​each in large US and international company stocks, US real estate trusts, US Treasuries and commodities.

The magic ingredient this year is of course the presence of raw materials. The S&P GSCI XX: SPGSCI
has skyrocketed 33% since Jan. 1, while everything else has fallen.

The key point here is not that commodities are great long-term investments. (They’re not. Commodities have been a mediocre or terrible investment over the long term, although gold and oil seem to have been the best, analysts tell me.)

The key point is that commodities generally do well when everything else, such as stocks and bonds, does poorly. Like in the 1970s. Or the 2000s. Or now.

This means less volatility and less stress. It also means that anyone with commodities in their portfolio is better positioned to profit when stocks and bonds dive.

Just out of curiosity, I went back and looked at how Ramsey’s All Asset No Authority portfolio would have done in, say, the last 20 years. Result? He crushed it. If you had invested equal amounts in these 7 assets at the end of 2002 and just rebalanced at the end of each year, to keep the portfolio evenly distributed among each, you would have posted stellar total returns of 420%. That’s 100 percentage points ahead of the performance of, say, the Vanguard Balanced Index Fund VBINX.

A simple wallet check once a month would have further reduced the risk.

It’s been 15 years since Meb Faber, co-founder and chief investment officer of fund management firm Cambria Investment Management, demonstrated the power of a simple market timing system that anyone could follow.

In short: you only need to check your portfolio once a month, for example on the last working day of the month. When you do, look at each investment and compare its current price with its average price over the previous 10 months, or around 200 trading days. (This number, known as the 200-day moving average, can be found very easily here on MarketWatch, by the way, using our charting feature).

If the investment is below the 200-day average, sell it and transfer the money to a money market fund or treasury bills. That’s it.

Continue to check your portfolio monthly. And when the investment goes back above the moving average, buy it back. It’s so simple.

Only own these assets when they closed above their 200-day average on the last day of the previous month.

Faber calculated that this simple system would have allowed you to avoid all the really bad bear markets and reduce your volatility, without hurting your long-term returns. This is because crashes don’t tend to happen out of the blue, but tend to be preceded by a long slide and loss of momentum.

And it doesn’t just work for the S&P 500, he found. This works for just about every asset class: gold, commodities, real estate trusts, and treasury bills.

It took you out of the S&P 500 this year at the end of February, well before the April and May crashes. It got you out of Treasuries at the end of last year.

Doug Ramsey calculated what this market timing system would have done to these 5 or 7 portfolios of assets over almost 50 years. Conclusion: since 1972, this would have generated 92% of the average annual return of the S&P 500, with less than half the variability of returns.

So, no, it wouldn’t have been as good in the very long term as buying and holding stocks. The average annual return is around 9.8%, compared to 10.5% for the S&P 500. Over the long term, this makes a big difference. But this is a risk-controlled portfolio. And the returns would have been very impressive.

Amazingly, his calculations show that during all this time, your wallet would have lost money in just three years: 2008, 2015, and 2018. And the losses would have been insignificant as well. For example, using his All Asset No Authority wallet, combined with Faber’s monthly trading signal, would have left you just 0.9% in the red in 2008.

A standard portfolio of 60% US stocks and 40% US bonds that year: -22%.

The S&P 500: -37%.

Things like “all-weather” portfolios and risk control always seem abstract when the stock market is soaring and you’re making money every month. Then you wake up stuck on roller coasters from hell, like right now, and they start to look a lot more appealing.

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