Lazy Portfolios in 2015

assetallocationpiechart

The following table lists 2015 total returns for various examples of “lazy portfolios”.

Some of the portfolios (Coffeehouse and Coward’s) are designed as  60/40 stock/bond portfolios. Other portfolios (Ideal and Swensen) are designed as 70/30 stock/bond portfolios.  The two-fund, three-fund, and four-fund portfolios are scaled to similar stock/bond allocations. The returns are derived from investments in  investor share class Vanguard index funds. Lower cost admiral share class funds would add approximately +0.10% to returns. Detailed descriptions of each portfolio’s annual returns are linked.

 2015 total return

Portfolio 60/40 70/30
Two-fund -1.09% -1.32%
Three-fund -0.79% -0.97%
Ferri Core four -0.43% -0.55%
Vanguard Core four -0.74% -0.95%
Coffeehouse -0.93%
Coward’s -0.82%
Ideal -1.55%
Swensen -0.34%

While the stock/bond allocations of the portfolio’s are similar, sub asset class allocations differ, accounting for difference in returns. The stock allocation differences include:

  • Value tilts: The Coffeehouse, Coward’s, and Ideal portfolios employ value tilts to the US stock portfolio allocation. In 2015 value stocks under performed growth stocks.
  • REITs: The Ferri Core Four, Coffeehouse, Cowards, Ideal, and Swensen portfolios include an allocation to equity REIT index funds. In 2015 equity REITS slightly out performed the overall US market.
  •  International stocks: Each of the portfolios include international stocks, but with differing allocation ranges. In 2015 international stocks under performed US stocks.

Bond allocation differences include:

  • Bond maturities: The Coward’s and Ideal portfolios employ short-term bonds in the bond allocation. All other portfolios use intermediate-term bonds. In 2015 short-term bonds slightly out-performed  intermediate-term bonds.
  • International bonds: The Vanguard four-fund portfolio has an allocation to hedged international bonds. All other portfolios invest in US bonds. In 2015 international bonds slightly outperformed US bonds.
  • Inflation-indexed bonds: The Swensen portfolio is the only portfolio with an allocation to  US inflation-indexed treasury bonds. In 2015 US inflation-indexed bonds slightly under performed US nominal bonds.

2015 asset class benchmark index returns:

  • CRSP Total US market: +0.40%
  • CRSP US Value: -0.86%
  • CRSP US Small: -3.68%
  • CRSP US Small Value: -4.64%
  • US REITS: + 2.22%
  • FTSE Global All Cap ex US Index: –4.29%
  • US Barclays Aggregate: +0.44%
  • US Barclays 1-5: +0.97%
  • Barclays US Trsy Inflat Prtcd Index: –1.44%
  • Barclays Global Aggregate ex-USD hedged: + 1.34%

Historical returns

The following tables provide historical portfolio returns. Keep in mind that past performance does not predict future performance.

The coefficient of variation statistic is a simple measure of risk adjusted return (standard deviation divided by the mean return.)  The the lower the ratio of standard deviation to mean return, the better your risk-return trade off.

60/40 allocation portfolios

Compound return

Portfolio 3yr 5yr 10yr 15yr
Two-fund 5.29% 5.69%
Three-fund 7.05% 6.67% 5.99% 5.52%
Ferri Core four 6.95% 6.73% 6.06% 6.62%
Coffeehouse 7.56% 7.29% 6.34% 6.73%
Coward’s 6.97% 6.27% 5.60% 6.30%

Standard deviation

Portfolio 3yr 5yr 10yr 15yr
Two-fund 6.96% 6.89%
Three-fund 8.31% 7.05% 11.82% 11.54%
Ferri Core four 7.22% 6.32% 11.79% 11.34%
Coffeehouse 8.02% 6.67% 11.74% 11.16%
Coward’s 8.43% 7.64% 13.46% 12.21%

Coefficient of variation

Portfolio 3yr 5yr 10yr 15yr
Two-fund 1.28 1.30
Three-fund 1.14 1.03 1.76 1.88
Ferri Core four 1.01 0.92 1.75 1.74
Coffeehouse 1.03 0.90 1.68 1.53
Coward’s 0.97 0.97 1.75 1.74

70/30 allocation portfolios

Compound return

Portfolio 3yr 5yr 10yr 15yr
Two-fund 5.92% 5.42%
Three-fund 7.96% 7.22% 6.10% 5.51%
Ferri Core four 7.86% 7.29% 6.48% 7.06%
Ideal 6.04% 5.41% 5.37% 5.92%
Swensen 7.04% 7.39% 6.46% 7.12%

Standard deviation

Portfolio 3yr 5yr 10yr 15yr
Two-fund 8.42% 8.35%
Three-fund 9.96% 8.54% 13.90% 13.63%
Ferri Core four 8.60% 7.64% 13.81% 13.39%
Ideal 8.71% 8.41% 14.25% 13.73%
Swensen 6.55% 6.04% 13.70% 12.96%

Coefficient of variation

Portfolio 3yr 5yr 10yr 15yr
Two-fund 1.37 1.47
Three-fund 1.14 1.03 1.78 1.88
Ferri Core four 1.06 1.02 1.94 1.97
Ideal 1.39 1.48 2.25 2.02
Swensen 1.05 0.95 1.95 1.70
About

Barry Barnitz, an administrator of the John C. Bogle Center for Financial Literacy site.

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