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.


(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).


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?

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