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?


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