There has been some discussion around the blogosphere regarding returns from strategic asset allocation strategies. Here is a post on the Yale endowment & Swensen’s allocation mix,
With the news that PIMCO is launching a real assets ETF, it now becomes possible to have a truly diversified portfolio with only 3 ETFs. 1 world equity, 1 bond, and 1 real assets. Doesn’t get much simpler than that.
Anyways, I thought I would update an old post on the performance of some lazy portfolios. You can do your own tests over on Asset Play with more granular asset classes, but I am presenting these below mainly to just be instructive. (Who runs this site btw?)
Completely unrelated but nice interview with Paul Samuleson. Part 1 and Part 2.
ALLOCATIONS:
US Stocks (S&P500)
Bonds (10 Year US Govt)
Foreign Stocks (MSCI EAFE)
REITs (NAREIT)
Commodities (GSCI)
60/40
60% US Stocks
40% Bonds
Andrew Tobias Three Fund Lazy Portfolio (Also similar to Bill Shultheis & Scott Burns’s 3 Fund portfolios)
33% US Stocks
33% Foreign Stocks
33% US Bonds
Swensen model, from his book Unconventional Success
30% US Stocks
20% REITs
20% Foreign Stocks (He recommends emerging, but for simplicity we just used foreign developed)
30% Bonds (He recommends short term US and TIPS, but since TIPS only existed post 1997 we lumped them in with bonds)
El-Erian model, from his book When Markets Collide
(This is simplified from his longer allocation. )
15% Commodities
20% US Stocks
15% REITs
30% Foreign Stocks
20% Bonds
Ivy Portfolio (from our book – note this is the B&H allocation not the tactical)
20% US Stocks
20% Foreign Stocks
20% Bonds
20% Commodities
20% REITs
Some nice rules of thumb:
Most asset classes have a Sharpe of around .20 (over time).
A diversified portfolio gets you to around .3 to .4.
Active risk management can improve that to around .7 to .8.
Data from Global Financial Data.
and a few more asset classes:
