Annual Update
Our Gone Fishin’ Portfolio Has Another Good Year
Well, the new year is finally here and stock market pundits are busy issuing their forecasts for 2024.
I love receiving these. Why? Because if you ball them up and place them under the kindling in your fireplace, you’ll have a roaring fire in no time.
I’m not kidding...
The experts were nearly unanimous coming into 2023. They warned us that high inflation and rising interest rates would lead to falling employment, a recession and the continuation of the bear market.
Wrong. Wrong. And wrong again.
The economy added more than 2.5 million jobs in 2023. U.S. economic growth expanded to 5% in the third quarter. And the stock market turned in its best performance in years.
A bad year for market timers? No, another typical year for market timers.
The New York Times’ Jeff Sommer reports that “the median Wall Street forecast from 2000 through 2023 missed its target by an average 13.8 percentage points annually – more than double the actual average annual performance of the stock market.”
No one knows what the market will do in the short term. Over the long haul, however, it’s a different story. The chart goes up and to the right.
In our trading portfolios, the goal is to outperform the market with individual stock selections.
But with the Gone Fishin’ Portfolio – our most conservative strategy – the objective is different.
Our goal is to beat inflation and earn high returns with as little risk as possible.
The portfolio is based on a Nobel Prize-winning strategy built on the most advanced principles of money management.
The strategy is simple and straightforward. You divide the portfolio among 10 different asset classes – represented by 10 different funds – that reflect our Oxford asset allocation model.
Then once a year you take 20 minutes to rebalance it. (This is done by selling back the funds that have appreciated the most and using the proceeds to add to the ones that have lagged, thereby returning each of the funds to its original allocation.)
The rest of the time you are free to “go fishin’,” whether you define that as golf, travel, time with the grandkids or casting a line in the shade somewhere.
And as our track record attests, it works. Last year the portfolio returned 14.3%.
That’s slightly less than the 16% return of the Dow Jones Industrial Average. However, we took a whole lot less risk.
Investors who own the Dow – either through an ETF or by investing in the 30 individual companies that make up the index – are 100% invested in stocks.
That means they ride out every downturn and correction in the market without a shock absorber.
Our Gone Fishin’ Portfolio, on the other hand, has 30% of its assets invested across high-grade bonds, high-yield bonds and inflation-adjusted Treasurys (or TIPS).
The result: less volatility – and fewer sleepless nights.
The Gone Fishin’ Portfolio takes a global approach and has substantial exposure to international markets, which make up 57% of the world’s equity market capitalization.
Those bourses underperformed the U.S. market last year.
In fact, over the past 10 years the tech-heavy S&P 500 crushed the leading foreign stock index – the MSCI EAFE – gaining 12.1% annually vs. 4.3% for its international counterpart.
Yet history shows that when foreign stocks take off, they really sprint. And international equities are overdue for a big move.
Will 2024 be the year? We’ll know for sure in 12 months. But we know now that most foreign markets are inexpensive relative to the U.S.
Why do we use index funds in this portfolio rather than actively managed funds?
Because our strategy is based on real-world results... not big promises.
Three out of four active fund managers underperform their benchmark each year. Over periods of 10 years or longer, almost 90% of them do.
In the world of actively managed funds, investors don’t get what they pay for.
Even the biggest-name managers routinely fail. Take Cathie Wood and her Ark Innovation ETF (NYSE: ARKK), for example.
Her fund rose 73% last year, making it one of the top-performing diversified equity funds.
Hooray, right? Wrong.
After rising 153% in 2020, the fund slid 23% in 2021 and plunged 67% in 2022.
Over the past five years, the ETF has gained just 8.7% per year, returning about half as much as the S&P 500.
Yet Cathie Wood is probably the best-known fund manager in the nation – and routinely interviewed about her take on the market.
I don’t mean to single Wood out. She is the rule rather than the exception.
Investment consulting firm Greenwich Associates notes that “over 10 years, 83% of active funds in the U.S. fail to match their chosen benchmarks; 40% stumble so badly that they are terminated before the 10-year period is completed.”
That is why low-cost, tax-efficient index funds are the best foundation for a long-term investment program.
I’m often asked why commodities aren’t part of the portfolio.
They are – indirectly – as our equity funds hold all the world’s leading natural resource companies.
We also have a 5% allocation to the Van Eck Gold Miners ETF (NYSE: GDX).
Gold and precious metals is the only commodity sector that had a positive return in 2023. The Gold Miners ETF finished the year up 10.5%.
A broad commodity index is not part of the portfolio because it would be a drag on returns.
Looking at the performance of the Invesco DB Commodity Index Tracking ETF (NYSE: DBC) and iShares S&P GSCI Commodity-Indexed ETF (NYSE: GSG), The Wall Street Journal’s Mark Hulbert recently noted that since July 2006 "DBC has produced an annualized total return of just 0.3% and GSG has produced a 4.9% annualized loss.”
Yes, commodities have occasional periods of strong performance. And they are not correlated with stocks and bonds. But their poor long-term returns make them an unworthy addition to the portfolio.
Let’s look at the performance of this strategy since inception...
An investment of $100,000 in the Gone Fishin’ Portfolio in January 2003 – with dividends reinvested – was worth $500,400 at the end of 2023.
(These figures are net of all costs and can be verified using Vanguard’s own numbers.)
In short, the Gone Fishin’ Portfolio allows you to manage your serious money in a serious way. It – or something very much like it – should form the foundation of your investment program.
Why use this strategy? Because it eliminates six major investment risks...
- It keeps you from being so conservative that your purchasing power fails to keep up with inflation.
- It prevents you from being so aggressive that your portfolio – or a large portion of it – goes up in flames.
- It eliminates individual security risk. (Each investment is a broadly diversified fund, so there is no chance of a single security – think Lehman Brothers or Silicon Valley Bank – causing your portfolio to crater.)
- It ends delegation risk. You can easily manage this portfolio yourself. That means no one can mismanage your money, run away with it or siphon off an ocean of fees.
- It avoids economic forecasting and market timing. Since these can’t be done accurately and consistently – and therefore don’t add value – they are no part of this strategy (or any of my other investment strategies, for that matter).
- It ends wasted time and effort. While other investors spend countless hours evaluating market data, financial advisors or competing theories about the future, you’ll have gone fishin’ instead.
Fully consider that last point.
Your most valuable asset is not your home, your bank account or your investment portfolio.
It’s the amount of time you have left on this little blue ball.
The Gone Fishin’ Portfolio is a long-term asset allocation strategy that gives you a high probability of increasing your net worth and meeting your most important investment goals.
It also guarantees you more time with the people and pastimes you love. Perhaps this last benefit is what recommends it most.
Good investing,
Alex