The Gone Fishin' Portfolio
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Gone Fishin' Portfolio: 2018 Review

Alexander Green, Chief Investment Strategist, The Oxford Club

Last year was a tough one for equity investors.

After nine consecutive years of positive returns, the S&P 500 - with dividends reinvested - returned -4.4% in 2018.

U.S. small caps performed even worse. And things were difficult for global asset allocators too.

Asian, European and emerging market stocks continued their multiyear underperformance, hurt by slow economic growth and a strong dollar.

U.S. high-yield bonds also posted negative total returns, as did real estate investment trusts, gold shares and Treasury Inflation-Protected Securities.

Only high-grade bonds managed to eke out a slightly positive return.

As a result, our Gone Fishin' Portfolio took a rare step backward in 2018, declining 9%.

The long-term return of our most conservative portfolio remains exceptional, however. An investment of $100,000 at the portfolio's inception in 2003 - with dividends reinvested - was worth $340,323 at the end of last year.

Except for cash and other super-safe, low-paying investments, there was simply no place to hide in 2018.

Over the long haul, however, history demonstrates that diversification and asset allocation are good bets.

Though the precise turning points can be seen only in hindsight, lagging asset classes eventually turn into outperformers.

So while novice investors might contemplate chucking asset allocation altogether after a year where diversification added no value, experienced investors realize that it's just a matter of time before the wheel turns again.

That's why it's so important to rebalance your portfolio annually.

This means trimming back on the best-returning asset classes and adding the proceeds to the lowest-returning ones to bring the portfolio back to the original target percentages.

That doesn't just boost your long-term performance. It also reduces the portfolio's volatility.

And that, of course, is the holy grail of investing: higher returns with less risk.

Two noteworthy items relating to our Gone Fishin' Portfolio in 2018...

Several of the funds have new ticker symbols.

That's because Vanguard reduced the investment minimum to $3,000 for many of its lower-cost Admiral Shares. (These lower minimums represent annual savings of up to 71% over the corresponding Investor Shares.)

(There are no tax consequences related to the change.)

The other shift was more significant. The original Gone Fishin' Portfolio called for a 5% allocation to shares of precious metals mining companies.

Yet in September of last year, Vanguard changed the name and objective of its Precious Metals and Mining Fund (VGPMX).

It is now the Vanguard Global Capital Cycles Fund. (It retained its old symbol.)

While the fund still invests in commodity-oriented industries and the natural resource sector, it will also focus on companies that own irreplaceable or scarce infrastructure assets, primarily in telecommunications and utilities.

Global Capital Cycles is less narrowly focused and therefore represents a broader opportunity set. And because it provides valuable diversification, I have decided to keep it in the portfolio.

However, those more interested in gold, silver and platinum shares may want to substitute the VanEck Vectors Gold Miners ETF (NYSE: GDX) that we use in our exchange-traded version of the Gone Fishin' Portfolio.

Also, I want to note the passing of one of my investment heroes, Jack Bogle.

Jack had a profound influence on me and on this portfolio, in particular.

He was both the creator of the first index fund and the founder of Vanguard, the first and only nonprofit, client-owned mutual fund company.

It is now the world's second-largest asset manager with more than $5.1 trillion in assets.

Jack made it possible for just about everyone to take a stake in stocks and bonds, with high efficiency, low minimums, rock-bottom costs and superb tax efficiency.

He did this by essentially going to war with Wall Street, calling the way most investment firms treat their clients "shameful" and their expenses "larcenous."

Today Vanguard funds charge an average of only 0.1% in annual expenses, saving investors billions of dollars annually. (In practical terms, you pay just $10 in fees for every $10,000 invested.) The average fund company's expenses are six times higher.

To call Jack's revolutionary creations a success is an understatement.

When John Wiley & Sons published my book The Gone Fishin' Portfolio: Get Wise, Get Wealthy... and Get On With Your Life in 2008, indexing was still referred to as "Bogle's folly" and not widely implemented.

Today almost half of all mutual-fund assets are held in index funds.

Why? Because costs are much lower. And that's a very big deal.

As The Wall Street Journal reported on January 7, "Data show that actively managed mutual funds with relatively high expense ratios - yearly fees as a percentage of assets under management - are associated with some of the worst performing and most poorly managed funds."

Over time periods of a decade or more, not 1 in 10 actively managed stock funds outperform their benchmark.

As Jack famously put it, "In the fund business, you get what you don't pay for." Lower costs equal higher net returns to shareholders.

Jack Bogle was a true pioneer, one who benefited hundreds of millions of investors.

Warren Buffett once remarked that he "did more for American investors... than any individual I've known."

A high accolade indeed - and entirely deserved.

Jack's wit and wisdom will be missed... but his legacy lives on.

Good investing,

Alex