I can’t predict the future, and neither can you. That’s why I created the Gone Fishin’ Portfolio. It’s breathtakingly simple, works like a charm and has beaten the S&P 500 every year, while taking much less risk than being fully invested in stocks.
So says Alexander Green (investmentu.com) in edited excerpts from his original article* entitled The Gone Fishin’ Portfolio: The Ultimate Index Fund Portfolio.
[The following is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Green goes on to say in further edited excerpts:
We also back-tested the system through the bear market of 2000-2002. Again, it beat the market every single year, and that’s what you want, an investment portfolio that holds up well when the markets are down – and sprints ahead when the market is moving higher. Since its inception, The Gone Fishin’ Portfolio has compounded at 17.3% a year and this is an extremely risk-averse approach, making it the perfect home for what I call your “serious money.”
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.
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.”
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 index funds because index funds are generally invested in a diverse portfolio of investments (an entire index), 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.
Index Fund Portfolio Allocation
…Here’s how you would asset allocate your “Nobel Prize” portfolio:
- Total Stock Market Index – 15%
- Small-Cap Index – 15%
- European Stock Index – 10%
- Pacific Stock Index – 10%
- Emerging Markets Index – 10%
- Short-term Bond Index – 10%
- High-Yield Corporates Fund – 10%
- Inflation-Protected Securities Fund – 10%
- REIT Index – 5%
- Precious Metals Fund – 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.
The 8 Advantages of The Gone Fishin’ Portfolio
There are eight primary advantages to using The Gone Fishin’ Portfolio…
- It prevents you from being too conservative or too aggressive, so your investments neither tread water nor blow up due to crazy risk-taking.
- It eliminates shortfall risk, the risk that inflation will destroy your purchasing power over the long haul. (It keeps your index fund portfolio from kicking the bucket before you do.)
- It requires no economic forecasting or market timing.
- It eliminates individual security risk. (There is no chance of holding a WorldCom, Enron or any individual stock or bond that causes your investment portfolio to crater.)
- It is exceptionally cost effective. You will do a complete end run around Wall Street, paying nothing in brokerage commissions, planning fees, sales loads, or 12b-1 fees.
- It is highly tax efficient, allowing you to defer capital gains taxes each year. (That keeps your net returns higher.)
- It is based on the only investment strategy ever to win the Nobel Prize in Economics.
- And, finally, it is so simple to implement, you can do it yourself in less than 20 minutes a year. (The rest of the time you are encouraged to travel, play golf, or “go fishin’.”)
The Best Reason For Using the Gone Fishin’ Portfolio
The Gone Fishin’ Portfolio’s high returns and low risk are only the beginning…The real beauty of the Gone Fishin’ Portfolio is it allows you to redirect your time to high-value activities, whether it’s work you enjoy, time spent pursuing your favorite activities, or just relaxing with your friends and family.
The Gone Fishin’ Portfolio gives you an excellent opportunity to grow your wealth – nothing offers better odds of long-term success – but, more importantly, it guarantees you peace of mind and the time to devote to the people and pastimes you love.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.investmentu.com/content/detail/gone-fishin-index-fund-portfolio (Copyright © 1999 – 2014 – The Oxford Club, LLC. All Rights Reserved.)
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