Thursday, January 29, 2009

Lazy Portfolios: 2009 YTD Performance Update

In the past 10 years (1998-2008), the Ultimate Buy&Hold portfolio performed the best. Now how did they do this year? Which one is the winner up to now?

The table below shows the YTD performance update of the Lazy Portfolios on 1/28/09. The Total Bond portfolio continued to perform well (Rank 1). The best performing Lazy Portfolio is now Dr. Bernstein's Smart Money (Rank 2) . The 10 year best performing portfolio - The Ultimate Buy&Hold - is Ranked at 6, only slightly better than the total stock market index portfolio (Ranked 7). The three portfolios performed below the markets are Dr Bernstein's No Brainer (Rank 8), the 8 year old Starter portfolio (Rank 9), and the Yale Unconventional Portfolio (Rank 10). (Note: All YTD data are from Vanguard.com)

1. Total Bond Index (Rank 1) (Benchmark)
2. Dr. Bernstein's Smart Money (Rank 2)
3. Aronson Family Portfolio (Rank 3)
4. Margaritaville (Rank 4)
5. Coffeehouse (Rank 5)
6. The Ultimate Buy&Hold (Rank 6)

7. Total Stock Index (Rank 7) (Benchmark)
8. Dr Bernstein's No Brainer (Rank 8)
9. Starter portfolio (Rank 9)
10. Yale Unconventional (Rank 10)






























Related Posts:

Lazy Portfolios (1): A 10 year Performance Comparison
Lazy Portfolios (2): Risk Analysis
Lazy Portfolios (3): Surprise, Surprise, the total bond portfolio beats them all
Which is better? An Index Fund Portfolio or An Actively Managed Fund Portfolio?



































































































Sunday, January 11, 2009

Lazy Portfolios (3): Surprise, Surprise, the Total Bond Portfolio Beats Them All

In the last post, we analyzed the asset allocation and risk associated with the 8 famous lazy portfolios, and found that the three portfolios (the Ultimate Buy & Hold, the Coffee House and Dr. Bernstein's Smart Money) with 40% /60% bond/stock allocation performed best in the last 10 years (1998-2008). We also found that the more stocks in a portfolio, the worse the total return. It strikes me that what mattered here might not be the funds the portfolios contain, but rather the stock/bond asset allocation in a portfolio.

Since the three portfolios contain different bond funds and it's not easy to compare them directly, I used the Vanguard Total Bond Index fund and Total Stock Index fund to form different sample portfolios from 100% stock to 100% bond as benchmark to do the comparison here. Surprise, surprise, the 100% bond portfolio performed better than all the Lazy Portfolios tested.


Results:

(1) The 100% bond sample portfolio (the green line in the following chart) performed the best, safely avoided the stock market crash during 2000-2002 and the most recent massive stock market crash in 2008 that pushed the economy in severe recession.





















(2) When compared to the sample portfolios of the same stock/bond asset allocation, the Lazy portfolios beat all of the sample portfolios by a wide margin.




















(3) The Ultimate Buy& Hold portfolio performed the best until 2007. The -20% return in 2008 pushed it's total return to $176,680, slightly behinds the 90% bond/10% stock portfolio ($179,242) and the 100% bond portfolio ($183,129).


















Conclusion:

Where should I invest my money now? If you want to play it safe and be really really lazy, you could put all your money in the total bond fund and forget about it. If you still want to play, the Ultimate Buy& Hold portfolio should still be a very good choice if the stock market reverses it's current downturn and becomes bullish again.


Related Posts:

Lazy Portfolios (1): A 10 year Performance Comparison
Lazy Portfolios (2): Risk Analysis
Which is better? An Index Fund Portfolio or An Actively Managed Fund Portfolio?

Tuesday, January 6, 2009

Lazy Portfolios (2): Risk Analysis

In the previous post, we compared the total 10 year return of the lazy portfolios and found that the Ultimate Buy&Hold Portfolio was the winner. However, the portfolios are not created equal, since the allocation of the bond funds and stock funds are not the same in these portfolios. How much risk we would have to take in order to achieve the total return in each of these portfolios?

Historical return suggests that stocks always out-perform bonds in the long run. General assumption is that the more stocks in a portfolio, the higher return, and also the higher risk involved. So what is the bond and stock allocation in each of the portfolio and how the asset allocation corresponds to the total return in 10 years?

The table below lists the total return, bond and stock allocation of the Lazy Portfolios.

(1) The first group of the portfolios (Ultimate Buy & Hold, Coffee House and Dr. Bernstein's Smart Money) contains 40% bond funds and 60% stock funds, the highest bond allocation (40%) in the group. They can be considered to be the safest in the Lazy Portfolios.
(2) The next group of portfolios (Margaritaville, Yale unconventional, Aronson Family Portfolio) contains ~ 70% stock funds and 30% bond funds. This group can be considered the 2nd safest portfolios.
(3) Dr. Bernstein's No Brainer portfolio contains 75% stock funds. This is a relatively aggressive portfolio.
(4) The second grader's Starter Portfolio contains 90% stock funds. It can be considered as a very aggressive portfolio.
(5) The last one is the Vanguard S&P500 Index which contains 100% stock, used as comparison.
















In contrast to our general belief that more stocks, higher return, the first group of portfolio with 60% stock and 40% bond performed the best during the period studied (1998-2008). As you can see from the graph below, it looks like that the total return is inversely related to the stock allocation in these portfolios. The higher the stock allocation, the lower the total return, with the S&P500 Index performed the worst.

















Conclusion:
The first group of Lazy portfolios with 40% bond/60% Stock allocation (Ultimate Buy & Hold, Coffee House and Dr. Bernstein's Smart Money) gave the best return during the 10 year (1998-2008) studied. In this case, the higher the stock allocation, the lower total return. The Ultimate Buy&Hold portfolio gave the best return with a relatively safe asset allocation (40% bond, 60% stock), the best choice with controlled risk in the group.

Saturday, January 3, 2009

Lazy Portfolios (1): A 10 Year Performance Comparison

I was reading Paul Farrell's most recent article "Lazy Portfolios vote for a winning 2009 -Upbeat new year ahead after beating S&P 500 by 3-18 points in 2008" today and found it very interesting. In a 5 year period, the portfolios returned from 0.62% - 3.07% annually compared to -1.53% for S&P500 (see results published on Marketwatch.com Lazy Portfolios). The results didn't looked that much different in a 5 year turn and I wondered how these portfolios would really perform in a long run (e.g. for 10 year).

Each of these portfolios consist of a 3-11 low cost, no-load mutual funds from Vanguard with different percentage allocations. Assuming each portfolio started with $100,000 at the beginning of 1998, here are the final performance results for these portfolios for the past 10 years (1998-2008).
















(Note: The annual return data for each of the funds was from Vanguard.com. For funds do not have a full 10 years return, it was assumed that the money allocated was kept in cash with 0% return).

Conclusions:

1. Portfolio return compared to S&P500: The final 10 year total return of each of the Lazy Portfolio comfortably beats that of S&P500. The first place portfolio Ultimate Buy&Hold Portfolio returned 59% more than that of S&P500.





























2. Comparison of 10 year total return: The Ultimate Buy&Hold Portfolio was the winner with a final value of $161,480 (without annual rebalancing) or $176,680 (with annual rebalancing) after 10 year. The least return was obtained by the 2nd grader's starter portfolio with a final value of $128,880 (without annual rebalancing) or $132,608 (with annual rebalancing) . A difference of $32,600 without rebalancing or $44,072 with annual rebalancing.


















3. Annual rebalancing improved the final return for each portfolio.
















4. While the final winner at 2008 was the Ultimate Buy&Hold Portfolio , the S&P500 fund gave slightly better return during the .com bubble during 1998-2000.
















Related Posts:


Lazy Portfolios (2): Risk Analysis
Lazy Portfolios (3): Surprise, Surprise, the total bond portfolio beats them all
Which is better? An Index Fund Portfolio or An Actively Managed Fund Portfolio?