Frank Armstrong III, investment advisor and author, offers the following seven fund “Ideal Indexed” portfolio in his book, The Informed Investor: A Hype-Free Guide to Constructing a Sound Financial Portfolio (published December 16, 2003).
The portfolio employs a 70% equity /30% fixed income split, consisting of six equity asset class funds and one fixed income fund.
In 2015 the Ideal portfolio produced the following returns:
| Year | Return |
|---|---|
| 2015 | -1.55% |
The equity slice holds a 30% portfolio allocation to international stocks. The US stock allocation has a value tilt, as the value allocations are larger than the blend and growth allocations. The asset class allocations include:
- US large blend stocks : 6.25%
- US large value stocks : 9.25%
- US small growth stocks: 6.25%
- US small value stocks : 9.25%
- US REITS : 8.00%
- International stocks: 31.00%
- US short-term bonds: 30.00%
The chart below (click to enlarge) shows the portfolio allocation (rounded values in the pie chart).
Ideal Indexed portfolio
Returns
The tables below gives returns for the portfolio, using Vanguard investor share index funds. Investors with larger fund balances can use lower cost admiral shares, and exchange-traded funds are available at potentially lower cost. Lower costs add approximately +0.10% to net returns. The returns period includes portfolio performance during the two bear markets in the 2000 – 2010 decade, as well as subsequent recoveries. Keep in mind that past performance does not forecast future performance.
| Fund | Ticker | Expense ratio |
|---|---|---|
| 500 Index | VFINX | 0.15% |
| Value Index | VIVAX | 0.21% |
| Small Growth Index | VISGX | 0.20% |
| Small Value Index | VISVX | 0.20% |
| REIT Index | VGSIX | 0.25% |
| Total International Index | VGTSX | 0.19% |
| Short-term Bond Index | VBISX | 0.16% |
Annual returns
| Year | Portfolio |
|---|---|
| 2015 | -1.55% |
| 2014 | 4.70% |
| 2013 | 15.66% |
| 2012 | 12.80% |
| 2011 | -3.22% |
| 2010 | 13.35% |
| 2009 | 23.93% |
| 2008 | -26.11% |
| 2007 | 5.95% |
| 2006 | 17.84% |
| 2005 | 8.23% |
| 2004 | 14.70% |
| 2003 | 27.25% |
| 2002 | -8.14% |
| 2001 | -3.23% |
| 2000 | 2.04% |
| 1999 | 13.60% |
Compound returns
| Period | Return |
|---|---|
| 3yr CAGR | 6.04% |
| 5yr CAGR | 5.41% |
| 10yr CAGR | 5.37% |
| 15yr CAGR | 5.92% |
Standard deviation
| Period | Standard deviation |
|---|---|
| 3yr standard deviation | 8.71% |
| 5yr standard deviation | 8.41% |
| 10yr standard deviation | 14.25% |
| 15yr standard deviation | 13.73% |
See Frank Armstrong Ideal Indexed portfolio, google drive spreadsheet for return computations.
Barry Barnitz, an administrator of the John C. Bogle Center for Financial Literacy site.
