The Gone Fishin’ Portfolio: Investment Success In Just 15 Minutes a Year
By Alexander Green, Investment Director
Friday, September 5, 2003: Issue #270
Editor’s Note: Today we have a guest essay from one of my mentors, and one of the smartest investors on the planet, Alexander Green. What he’ll show us in a moment can help you bring a maximum level of profitability – and simplicity – to your investing. – Enjoy, Dr. Steve Sjuggerud
Imagine a place where your time is yours to spend as you wish Where you spend time only with people you want to be with Working on the things you enjoy Traveling the world Spending time with your kids or grandkids Or, of course, going fishing. That’s what The Gone Fishin’ Portfolio can do for you.
Get ready to watch your investment dollars compound. And enjoy the satisfaction and peace of mind that come from knowing you are using a system that has the highest statistical probability of long-term success.
That’s not just my opinion, by the way. It’s the opinion of the Nobel Prize Committee as well. I’m going to detail exactly what this simple investment system is all about, why it’s so incredibly effective, how you can put it to work immediately, and why it only takes 15 minutes a year to use. That’s right, 15 minutes a year. And you’ll be maximizing your investment returns with the least risk possible
Where It All Started
In 1990, Dr. Harold Markowitz won the Nobel Prize in Economics for his groundbreaking discovery of the math behind the Gone Fishin’ Portfolio. Although many of the concepts used by Dr. Markowitz are hard to understand, he won the award because he showed how investors can master uncertainty and, at the same time, generate excellent investment results.
You don’t even need a computer to implement this strategy. All the adjustments you’ll need to make to your portfolio can be done once a year – with a single 15-minute phone call. The rest of the time you’re supposed to go fishing or you can just spend your time however you choose. Because this strategy works.
Instead of struggling with trying to figure out when to get in and out of the market, do something simple: Spend 15 minutes a year on your Asset Allocation – a nominal amount of time when you consider the impact it can have on your portfolio and your life.
What Asset Allocation Is
Asset Allocation is the process of developing the most effective – optimal – mix of investments. In this case, optimal means that there is not another combination of asset classes that is expected to generate a higher ratio of return to risk.
And what does it consist of? Quite simply, it’s breaking down your portfolio into different baskets, or classes of investments, to maximize returns and minimize risk. As the cliche goes, “Don’t put all your eggs into one basket.”
So let’s take the first steps in breaking down your portfolio into baskets, or asset classes. By the way, an asset class is a group of securities that have similar financial characteristics. For the purpose of today’s letter, let’s focus on the five principal types of long-term investments – stocks, bonds, cash, real estate and precious metals.
How To Spread Your Eggs Around
Diversification is a strategy designed to reduce exposure to risk by combining a variety of investments, which are unlikely to move in the same direction. In other words, you don’t want to put all your money in investments that will perform similarly.
One of the best ways to diversify your portfolio is by placing your money into mutual funds. Because mutual funds are generally invested in a diverse portfolio of investments, they provide the greatest degree of diversification. By owning several investments you lessen the chance that you’ll suffer if one or two of them drop in value. One mutual fund can hold dozens or even hundreds of different securities at the same time.
The Gone Fishin’ Portfolio allows you to put this strategy to work through the lowest-cost group of mutual funds in the country, the Vanguard Group. Here’s how you would asset allocate your “Nobel Prize” portfolio:
The Gone Fishin’ Portfolio
Vanguard Total Stock Market Index (VTSMX) – 15%
Vanguard Small-Cap Index (NAESX) – 15%
Vanguard European Stock Index (VEURX) – 10%
Vanguard Pacific Stock Index (VPACX) – 10%
Vanguard Emerging Markets Index (VEIEX) – 10%
Vanguard Short-term Bond Index (VFSTX) – 10%
Vanguard High-Yield Corporates Fund (VWEHX) – 10%
Vanguard Inflation-Protected Securities Fund (VIPSX) – 10%
Vanguard REIT Index (VGSIX) – 5%
Vanguard Precious Metals Fund (VGPMX) – 5%
Notice that we have a 30% allocation to U.S. stocks. It is divided between small-cap and large-cap stocks. Likewise, the 30% allocation to international markets is evenly divided between Europe, the Pacific and Emerging Markets.
You might wonder how including some of these riskier assets – like emerging markets, gold and small-cap stocks – actually makes your portfolio less volatile. By combining these riskier – but non-correlated – assets, you actually increase your portfolio’s return while reducing its volatility.
It is also important to note that the Gone Fishin’ Portfolio is not exclusive to the Vanguard Group. We selected Vanguard as our family of funds simply because they have the lowest expense ratios (in fact, for the moment, Vanguard has stopped admitting new investors to two of these funds). In an effort to maximize returns through Asset Allocation, reducing expenses with the Vanguard Group provides the best fund platform. But it can be used with any fund family.
If you’d like to imitate the above portfolio and don’t know where to start, Schwab is a good company to contact: www.schwab.com. Simply use the same percentage breakout as noted above for your Asset Allocation. Then select, from the list of funds available to you, the ones that most closely mirror the Vanguard funds.
Who Should Consider the Gone Fishin’ Portfolio?
For those of you who are conservative investors, who are retired or close to retirement, who need to exceed inflation while taking as little risk as possible – and who prefer casting purple worms to trading stocks – the Gone Fishin’ Portfolio is designed with your serious money in mind.
Key Points To Remember
- Asset Allocation is time tested. It has worked and will continue to work because it takes the guessing out of investing.
- Asset Allocation is a Nobel Prize-winning strategy. No other strategy shares this seal of approval.
- Research demonstrates that Asset Allocation accounts for approximately 90% of investment returns, making it nearly 10 times as important as stock picking and market timing combined. There is no other investment strategy that can boast the same.
- The world’s most successful and respected investors swear by it. As Paul Sturm of Smart Money puts it, Asset Allocation is “a simple strategy that comes as close to guaranteeing long-term success as anything I’ve seen.”
-Its benefits are unparalleled: significantly reduced expenses, protection against inflation, maximized returns with minimal risk – the list goes on.
And the best part about it – it’s simple. With the Gone Fishin’ Portfolio, all you have to do is make one phone call – 15 minutes a year. It’s worth considering
Good investing,
Alexander Green
Today’s Investment U Cribsheet
- If you’re interested in even more reading, the book The Intelligent Asset Allocator by William Bernstein covers this topic in full.
- If you have the ability to invest in the Vanguard Group, you can set up The Gone Fishin’ Portfolio by contacting Vanguard directly at www.vanguard.com or 800.284.7245. Or contact Schwab at www.schwab.com.
Related Investment U Articles:
- Vanguard’s Jack Bogle: Investors Take Heed… A Financial Crisis is Imminent
- Global Portfolio Diversification: Striking the Right Balance Between Risk and Reward
- The Five-Step Market-Beating Formula for Successful Investing
- Why I Don’t Watch CNBC
- Don’t Run Scared, Just Reduce Risk
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Alexander Green is the Chief Investment Strategist of Investment U. A Wall Street veteran, he has more than 20 years of experience as a research analyst, investment advisor, financial writer and portfolio manager.
