10 Powerful Portfolio Strategies (And Which One is Right for You!) – Part 2

Transcript:

On this episode of the Personal Finance Podcast, 10 Portfolio Strategies, and which one is right for you? Part two.

What's up everybody, and welcome to the Personal Finance Podcast. I'm your host Andrew, founder of Master Money, and today on the Personal Finance Podcast, we're gonna be diving into 10 portfolio strategies and which one is right for you? Part two. If you have any questions, make sure you join the Master Money Newsletter by going do master money.co/newsletter.

And don't forget to follow us on Spotify, apple Podcast, YouTube, or whatever podcast player you love listening to this podcast on. And if you wanna how out the show, consider leaving a five star rating and review on Apple Podcast, Spotify, or your favorite podcast player. Now, if you did not hear part one of this episode, make sure you go back and listen to part one because this is going to be part two, diving into six more portfolio strategies and figuring out which one is right for you.

In the first episode, we went through, uh, first the Simple Path to Wealth portfolio. Then we went through Warren Buffett's 90 10 portfolio. We dove into Scott Burns the Couch Potato Portfolio, which is an interesting one. And then number four is we went through the Bogle Heads portfolio, but we've got a action packed list here for you today.

Uh, 'cause we're gonna go into Dave Ramsey's portfolio, Ray Dalio's portfolio, Paul Merriman, friend of the show who's been on the show's portfolio, uh, and much, much more today. Now, if you didn't hear the first episode, we are diving deep. We're kind of going in the weeds on these episodes, but I'm also talking through how these portfolios performed.

Historically in the past, meaning that how did they perform during the tech bubble? How did they perform during the 2008 crisis? How did they perform as time went on and they surge? And who are these portfolios for? Are they for early retirees? Are they for people who are closer to retirement age? Are they for young investors?

Were going through each and every single one Now, the first four that I went through on the first episode. Are all portfolios that are gonna be much more simple than the portfolios that we are talking about today, because my list gets progressively more complicated as time goes on. And in that first episode, what we did was we talked through, uh, how you should think about your asset allocation and how you should think about how your portfolio should be constructed.

So if you have not heard that first one, uh, I highly recommend going through that one first, uh, before diving into this one. But we're gonna get into the next fund next, which is Dave Ramsey's four fund strategy. Alright, so we're gonna dive into Dave Ramsey's four fund portfolio, which is an actively managed investment approach that decides on four types of mutual funds with equal weighting of 25% each.

So Dave owns four different mutual funds, 25% each, and number one is gonna be growth or large cap stocks. And so the US big companies like Apple and Amazon and Google will be 25% of that portfolio. Folio. Now, he also has growth in income, which is dividend paying stocks as 25%. Now this is going to be stable dividend producing large companies.

Then he has 25% in aggressive growth, which is high risk, high reward stocks. And then number four is international stocks. He has stocks from outside the US for global diversification, so he structures it in this way. Now, one thing that Dave does is he invests in mutual funds. Now, mutual funds are gonna have higher fees, which we'll talk more about that here in a second, but what I'm gonna do is kind of try to construct and help you construct this in an index or equity fund way.

So let's look at a couple of these. For the growth, you can have something like the s and p 500 index fund, which is V-F-I-A-X, or the Fidelity Large Cap Growth Index Fund, which is something like. F-S-P-G-X. Okay. Then we have growth and income. So you can do Vanguard's dividend growth fund, which is V-D-I-G-X, or Fidelity's Equity Income, which is F-E-Q-I-X.

Now these again, are not recommendations, these are just options that are out there that you can do more research on. Next is aggressive growth. So Vanguard has a small cap growth index fund, which is V-S-G-A-X, and Fidelity has a small cap growth index fund, which is FCP. Gx and then there's the international funds like the Vanguard Total International Stock Index Fund, or V-T-I-A-X and Fidelity's International Fund, which is F-S-P-S-X.

Now this portfolio aims for high growth while diversifying across different types of stocks. Now, why is it constructed this way? Day believes that this portfolio balances growth. And stability while keeping investors engaged. And his key principles behind this are, number one, that stock market growth is the best way to build wealth.

So he does not believe in bonds whatsoever at all. And so stating that over long period stocks have historically outperformed bonds. Now this portfolio is 100% equities, which means it can grow faster than mix. Stock bond portfolios. Two is that he does have that diversification across market segments. So he has a large company, he has small and mid cap companies, and he has that international stock exposure.

Uh, instead of just investing in the s and p 500, he's trying to make sure that he has exposure to all these different sectors. Uh, and that is his goal. It also avoids market timing and actively manage. Fees. So he strongly advises against actively managed mutual funds with high fees. So he looks for lower fee mutual funds.

Uh, instead he recommends no load, no fee funds that follow index like strategies now. So that has shifted a little bit over the time for him. Um, but that is something that he looks at. Now this portfolio is for aggressive investors who wanna maximize growth but still have diversification within their stock portfolio.

And so this might be better than others if you are looking for more diversification than just a one fund strategy. Uh, even though that one fund strategy does own stocks in all these different market sectors, which is kind of. Part of the argument, uh, number two is higher growth potential than maybe traditionally balanced portfolio.

So if they have more bonds or a ton more international than what this portfolio has, then it maybe has a little more growth potential and it is easier than picking individual stocks again. And so if you wanna pick individual stocks, more power to you. But this is a lot easier than that. Now, the potential drawbacks or there are no bonds, so there might be higher volatility for people who can't handle that volatility.

Uh, and so this can experience huge drops during recessions and small cap and international exposure increases the reach. So the small cap and international stocks tend to be more volatile than even US stocks. And so you're really gonna have a bumpier path, uh, with a portfolio like this because of that small cap and that international.

Exposure Now, it also does require a little more rebalancing than all the other portfolios that we've talked about thus far. And so that is another consideration as you start to think about this now, how. Has this portfolio performed over the course of the last 30 years, so it has had an annualized return of 9% per year, uh, similar to the three fund portfolio over the course of the last 30 years.

And so $10,000 invested in 1994. It's actually had a little more than 9%. Because $10,000 invested in 1994 grew to $150,000 in 2024, so $10,000 more than the three fund portfolio, and it slightly outperforms a pure s and p 500 portfolio during high growth periods, but. The higher volatility makes it riskier during downturns.

Now, how performs in good bad times? Let's look at this. The best year was 2003, where increased 37%. When the market booms, the portfolio benefits significantly from small cap and aggressive growth stocks. So because there's small cap stocks in here, small caps will grow very quickly, but they also will. Get reduced very quickly as well.

They will go down very fast. Its worst year was 2008, uh, and this portfolio suffered heavily during the great financial crisis because it has no bonds to cushion it, it dropped 40% in 2008. It performed very, very well. During the tech boom and the.com crash, it lost nearly half of its value. During the.com crash because it doesn't have any protection.

So again, this is extremely volatile portfolio. This is the most volatile we've seen thus far. Now, in 2008, financial crisis again, it dropped that 40%, and then during COVID-19, it lost more than 30% in March of 2020. But recovered quickly with the stock market like everything else has now biggest risk.

Extreme volatility in this portfolio, it's moving up and it's moving down. It can lose 35 to 40% or more depending on what is going on economically, and it has no protection from bonds or fixed income. So if the market crashes, there's nowhere to hide with this portfolio. This is guns ablazing. Here we go.

We are going all out and all in on this portfolio. So people who should use this strategy, who should use it? Who should avoid it or consider using it and avoid it and doing more research. Aggressive investors willing to accept high volatility for higher returns. If you are looking to gun sling out there and you know you're willing to stay invested over the course of the long run, great portfolio for you maybe.

And then people with long investment horizons, you gotta have 20 plus year investment horizons for this one. If you're gonna need the money in the next five to 10 years may not be the gun slinging portfolio for you. Uh, investors who believe in a hundred percent stock portfolios and don't want bonds, uh, this is also gonna be one for you.

Now, it's not ideal for retirees or conservative investors who can't afford large market crashes. So if you're retiree. And you cannot afford your portfolio to drop 30, 40, 50%. Um, this is not the portfolio for you if you are someone who panics during downturns. This is also not the portfolio for you. This is as aggressive as you can get.

Uh, and investors who prefer passive strategies, if you like, more passive strategies, uh, this requires actively choosing and rebalancing for funds. And so if you wanna be a little more passive, um, this may not be. For you. So it is a aggressive 100% stock backed portfolio looking for maximum long-term growth.

But it does come with those major risks. And if you can handle the volatility and you have a long-term time horizon, it can work well. But if you need stability, this is not the best option for you. Let's get to the next one. All right. Next we have Bill Bernstein's, no-brainer portfolio. Now this is also gonna have four equally weighted asset classes.

They're just a little bit different, um, than what Dave has here. And so this no-brainer portfolio was designed by Bill Bernstein, who is a neurologist turned financial expert, and the author of the Intelligent Asset Alligator. I encourage a lot of people to go read that if you haven't. It's a pretty good book, uh, and one that I think, uh, a lot of people could benefit from.

He makes the argument for this portfolio in that book. Um, and it has a broad diversification with a simple allocation as well, uh, making it easy for investors to follow. Now, this consists of four equally weighted asset classes at 25% each. It has large cap stocks, and this is going to be US companies. You already probably know if you've been listening to this podcast for the last episode in this episode, what large cap stocks are.

But it's the big US companies, small cap stocks, which are smaller US companies with high growth potential international stocks, which is gonna be the non-US companies. And then short term bonds. So some common funds used for this one for large cap stocks. You can look at something like V-F-I-A-X at Vanguard, which is the s and p 500 index fund.

Uh, you can look at Fidelity's large cap. Growth index fund, which is F-S-P-G-X. And then for the small cap stocks, something like Vanguard's small cap index fund, which is V-S-M-A-X vs MAX, or Fidelity's small Cap index fund, which is V-S-S-N-X. And then at international stocks you can look at something like V-T-I-A-X for Vanguard's Total International Stock Market Fund.

And then you can also look at like Fidelity's International Index Fund, which is FSP as in. Pogo stick sx, and then we have short term bonds. And so short term bonds are going to be, uh, something like V-B-I-R-X, which is Vanguard Short-Term Bond Index Fund. And then we have Fidelity's short-term bond index fund, which is F-S-H-B-X.

And so why is this constructed in this way? It's built on three key principles. Number one is diversification across all US and international markets. So the large cap and small cap stocks capture different segments of the economy and international stocks provide exposure in global markets, reducing the dependency of the US economy.

Now the bonds are gonna help reduce that volatility again, as bonds always do. Uh, and so instead of being a hundred percent stocks, these short-term bonds can provide a cushion if there's market crashes. And then short-term bonds are less affected by the rising interest rates, uh, in compared to long-term bonds.

Now it is very simple and easy to manage. With this portfolio, 25% allocation across those four asset classes means you don't have to adjust the weights often and you just rebalance once a year and you're set. That is his rule also is to rebalance once a year. For a lot of these. If you're gonna rebalance, it's just worth it, you know, once a year to look at that allocation, make sure it didn't get too far outta whack.

If you believe in rebalancing, we have an entire episode talking about rebalancing. Uh, if you have not heard that episode, it is worth a listen most likely now. Why this may be better than other options for you. Number one is it's more diversified than just the s and p 500 portfolio under like a single fund market strategy.

This includes small cap and international stocks, and small cap stocks often outperform large cap stocks in bull markets. Uh, it also has lower volatility than just a hundred percent stock portfolio. With the 25% bond allocation smoothing out big market drops and it makes it less volatile than a 90 10 or a Ramsey four fund strategy.

You don't need to pick winners again, with this portfolio, you own everything, which large cap, small cap, international, and bonds, and you benefit from those broad market gains instead of just relying on a few big companies. Some of the biggest drawbacks with this one is there's lower returns than all stock portfolios.

International stocks can also underperform because over the last few decades, again, international stocks have been underperforming and require some rebalancing. Uh, again, there's four funds. And so once you get past three funds, rebalancing is gonna be something that you're gonna have to think about every single year, uh, more and more as you add funds to your portfolio.

And so this is a four fund portfolio that I think can make sense for some people. Uh, but you gotta think through this. Now, the annualized return for this one is 8% every single year. So it's better than the 50 50 couch potato, but lower again than the one fund portfolio. So, so far in this race, the one fund portfolio, V-T-S-A-X, uh, which was in the simple path to wealth, is winning on the rate of return over the course of the last 30 years, which is very interesting.

Simplicity is winning. Um, $10,000 invested in 1994, grew to a hundred thousand dollars in 2024, a little over a hundred and bonds helped reduce drawdowns. But at the cost of some growth, and so this is by far not the best allocation in terms of getting the best performance out there. Because the 50 50, uh, couch potato, you know, just returned slightly less and it had 25% more bonds in it.

So how does it perform in good and bad times? Its best year was 2003, where it gained 30% because of that small cap allocation. So what you're noticing here is that. Stocks with huge s and p 500 allocations. Their best year was 1995. The ones with more small cap allocation, their best year was actually 2003.

And so adding that diversification does give you some bigger wins in different years. Um, when you add that diversification in its worst year was 28%, so the great financial crisis hit stocks hard, but bonds help cushion those losses. So because this has a 25% allocation. Those bonds help reduce that hit.

Now again, the Warren Buffet portfolio had a 33% loss. This had a 28% loss, and it has more than double the bonds in the portfolio, and so you're sacrificing growth, which is why Warren, I think, argues all the time that his allocation is pretty good. Now, during the tech boom, it performed very well. Because small cap and large cap stocks surged.

And then during the COVID-19 crash, uh, stocks crashed 30% in March. But the bonds provided a buffer and the portfolio recovered very quickly. So the biggest risks here are going to be the smaller companies and international stocks are more volatile. Uh, bonds can underperform in high inflation if inflation rates rise.

And then we are also looking at if interest rates rise, bonds may struggle. So it's great for investors who want balance between growth and risk reduction, and it's also for people who want global diversification, but still want us stocks to dominate. And those who want less volatility than a hundred percent stock portfolio, but more growth than a 50 50 portfolio, this one may be for you.

Now, it's not ideal for investors who are seeking maximum growth. A hundred percent stock portfolio will likely perform better over decades, and people who want a truly passive approach, this requires rebalancing. Annually to maintain that 25% split. And so the bottom line is the no-brainer portfolio has a solid mix of growth and stability, making it a great choice for those who want strong returns without that extreme volatility.

And so that is what a lot of people can look at. Probably not the portfolio for me, only because it just didn't perform as well as some of these other ones. Um, and so for me personally, it is not the one I'm gonna look at, but it does have that 25% bond allocation if you wanna weather out the storm more.

That's basically a 75 25 total, so you could definitely look at this one if you are interested and do a little more research. Definitely recommend his book though. His book is fantastic and, and it helps educate you even more on some of these portfolios. Now we're gonna get into Ray Dalio's all season portfolio, which has even more funds.

Alright, number seven is Ray Dalio's All Season Portfolio. So the all season portfolio was created by Ray Dalio, who is a billionaire investor and founder of Bridgewater Associates. Now this is one of the largest head funds in the world. And the goal of this portfolio, this is kind of what he presented to investors who were trying to figure out, hey, how does Bridgewater Associates, uh, put together their portfolio?

And this is his. Individual investor version of it, basically stating, Hey, this is kind of what we do. Um, and this is our all weather and all season portfolio. Now, the purpose of this portfolio is it's designed to perform well in all economic conditions, whether the market is going up, down, or sideways.

Dalio's idea is that the different asset classes perform well in different economic environments. So that by balancing them properly, you can create a portfolio that is resistant. Two market crashes Now, it consists of five different asset classes, and each one is weighted to provide stability and growth.

So first 30% of it, it goes into US stocks. Now, this is the portion where I have a hard time because 30% in US stocks is tough for me because I believe in the long term growth of the US economy. Now 40% is in long-term bonds, meaning it helps in economic downturns and deflationary period. 15% is an intermediate term bonds, which adds for further stability, and then 7.5%.

This is the first time we've seen these two asset classes is in gold. And so it a hedge against inflation and market uncertainty, and 7.5% is in commodities, which protects against rising prices and inflation. And so he has these five different categories that is supposed to weather out all these different storms.

So what are some common funds, if you are interested in looking into them more? For the US stocks, obviously V-T-S-A-X we've been talking about the whole way. And then Fidelity's version is fx, KAX is one. And then for long-term bonds, iShares has a 20 plus year term treasury bond, ETF, which is TLT. And Vanguard has a long-term treasury fund, which is V-U-S-T-X.

And then for intermediate term bonds, iShares has a seven to 10 year treasury bond, ETF, which is IEF. And Vanguard's intermediate term bond fund, which is V-B-I-L-X. And then for gold, uh, you can look at, if you wanna look at an ETF for gold, spider has gold shares, ETF, which is GLB. And then for commodities, invesco's DB commodity index, E-T-F-D-B-C is one that you can also look at if you're looking at the index fund and ETF versions.

Now why is this constructed this way? This is what a lot of people wanna know. And so he designed this portfolio based on the idea. The economy moves in four different major environments. One is the economy has a growth environment, which means stocks do well. Two is it has a recessionary environment, which means bonds and gold do well.

Three, it has an inflationary environment, which means commodities and gold do well, and then deflation means bonds perform well. Now since nobody can predict the future, or this portfolio aims to thrive in any environment. By balancing all of these assets, so stocks 30% drive the growth, the bonds 55%, stabilize the portfolio during recessions, and the golden commodities protect against inflation.

That is the entire goal of this portfolio, to be able to protect against those four different growth recession. Inflation and deflation, those four different economic environments. And so that is what he's trying to do. Now, why might this be better than other options for some people, a extremely low volatility, as we will see here in a second.

Uh, but this is designed to minimize losses and downturns. Even during major stock market crashes, it remains relatively stable. Now it also performs well in all economic conditions. So unlike a hundred percent stock portfolios, which can drop 40% in bear markets, uh, this portfolio typically falls much less during downturns.

And there's less emotional stress for investors because it doesn't experience extreme swings. And so investors are less likely to panic. Sell at the wrong time. Now, here are some potential drawbacks for you, is the lower long-term returns than stock heavy portfolios. And so that is something you definitely want to see, which we'll talk about the returns here in a second.

It is probably too conservative for a lot of young investors, uh, because you have 30 plus years before retirement. You wanna make sure that you are getting that growth when the going's good, you know what I'm talking about? And then golden commodities are volatile, so. Golden commodities. The hard part about those is they don't have an intrinsic value, meaning they have nothing backing them.

All they have is the willingness of somebody else to pay for them. So if you hand somebody a bar of gold, there's no like balance sheet for that bar of gold. You only can sell it for what somebody is willing to pay for it. And so that's the same thing with Bitcoin. That's the same thing with commodities, those types of things.

And those types of investments don't have, you know, financials backing them and there's no intrinsic value. So you just wanna make sure that you understand how that works too. Now, the performance over the last 30 years, what we all wanna know? From 1994 to 2024, the annualized returns for this portfolio is 7.5% per year.

Not terrible. Uh, pretty good average rate of return, which is why for a lot of times when we're prepping for retirement, we're trying to put 7% returns, even though most likely that's pretty conservative. Now, $10,000 invested in 1994, grew to about a little over $90,000 in 2024, and this is the lowest return so far, but it comes with far less volatility and then stock heavy portfolios.

So let's look at its best year. Let's look at its worst year. Okay? Because this is really important to understand, and you're gonna be surprised at the worst year in a second, I think. But the best year is 27%, and that was in 1995 when the stock market surged. It's worst year though. Was 2022 where it went down 21% when the Federal Reserve raised interest rates and bond heavy portfolios got hit hard, so it actually did worse than the couch potato portfolio, which only lost 16% that year.

And this actually did worse, and the couch potato's a lot easier to manage the tech boom. Lagging behind a hundred percent stock portfolios because the heavy bond allocation, so during the tech boom with the nineties and the 2000, it was way behind those stock portfolios. But during the.com crash, it only lost about 10%.

So it lost the least amount during the.com crash where, um, the couch potato portfolio lost 12%, this only lost 10%. And then during the 2008, financial crisis stocks crashed 37%, but the all season portfolio lost only about 14%, which is very. Very good. And so losing 14% during that crash shows you that it will weather a lot of different things, especially that 2008, it's actually less of a loss than what the couch potato portfolio did.

So it actually protects you more during those big, big losses than what that did. Now, stocks dropped 30% in March of the COVID-19 crash in 2020, but this portfolio only lost around 5%. That is fascinating to me, um, that it will really hedge against downsides for you if you are looking to hedge against. The portfolio going down.

So 7.5% per year is what it's averaged and gained as a rate of return, but it also hedges against downsides. So the biggest risk is you get lower growth in stock heavy portfolios and inflation and rising interest rates can also hurt bonds, and this is a very heavy bond portfolio, but it is great for investors who prioritize stability over overgrowth if you care about stability for the long run.

If you are close to retirement, maybe that's for you. Uh, retirees or conservative investors who want less risk in downturns, this may be a good portfolio for you to consider. Or people who get nervous during stock market crashes, then something like this is gonna help you a lot 'cause it's not gonna dip as much as a heavy stock portfolio.

Now, it is not ideal for young investors who want higher long-term returns unless they have really large amounts of money that they're putting away, or aggressive investors who can handle volatility for better long-term growth, or people who don't believe in holding gold or commodities. This is not for you as well.

And so the all season portfolio is one of the safest long-term investment strategies that we have on this list, uh, because of how it. Can avoid major market crashes and it is ideal for conservative investors and so its returns are lower than stock heavy portfolios. Making it less ideal for young investors focused on wealth accumulation and less they have a low risk tolerance, then that means they probably want to make sure they protect against some of this stuff.

Next, let's get into the Yale Endowment portfolio. Alright, so now we're gonna get into the Yale Endowment portfolio, which is Dave Swenson's portfolio. And this was created by Dave Swenson, who managed the Yale University Endowment from 1985 to 2020. And under his leadership Yale Fund grew from $1 billion to $31 billion, making it one of the most successful institutional portfolios in history.

Now his approach was unique because he diversified heavily beyond just stocks and bonds, incorporating alternative assets like private equity, hedge funds, and real estate. So this is gonna be the first time we are gonna see some additional different types of funds, uh, in this portfolio. Now we're gonna create a retail investor version because for you, you can't do private equity stuff.

And so there's not gonna be things that you can do right away. But this is the retail investor version that he created, uh, that will show you, you know, how you could do this in the stock market basically. And so the asset allocation for the retail investor version is 30% US stocks. 15% international stocks for exposure to global markets, 5% emerging markets for high growth potential in developing countries.

So if you've never heard of emerging markets, those are countries that are really growing quickly, uh, and rapidly. They have much higher risk, but they can also grow really quickly. 30% in bonds for intermediate terms. So first stability and fixed income. And then 20% in real estate investment trusts, which is very interesting.

So real estate diversification. Now common funds for each of these, for the US stocks is gonna be something like V-T-S-A-X or F-S-K-A-X. Those are the ones we've been talking about this whole time. International stocks would be Vanguard's total International fund, which is V-T-I-A-X in Fidelity's International Fund is FSP.

Sx. Emerging markets can be vanguard's emerging markets, ETF or A VWO, which is a great one. Fidelity's got an emerging market index fund, which is F-P-A-D-X, and then for bonds for the intermediate term treasury, ETF, that's VGIT at Vanguard, and then it is iShares US aggregate bond. ETF or a G. G is going to be the iShares.

And then REITs, we have Vanguard's real estate, ETF, or VNQ. Uh, that is one that I own. And then, uh, Schwab's us reit. ETF is SCHH. And so why is this constructed this way? Well, Swenson believed that institutions and individual investors should not rely solely on stocks and bonds. And so he built his portfolio on broad diversification.

Instead of being a hundred percent stocks and bonds, it adds REITs and emerging markets to kind of diversify your portfolio. Now, if you don't want to add REITs and you're like a real estate investor, for example, that is. Also something you could do is you can go invest in rental properties or something like that with a portion of your portfolio.

Alternative investments for stability, uh, would be REITs like real estate investment trusts, which provide passive income and perform differently than stocks do. And then emerging markets over high growth potential and exposure to economies outside the US and Europe. And he also is trying to avoid high fee actively management.

So he believed in low cost index funds and preferred passive investing over expensive mutual funds. Now, why this might be better than other options? This is a more diversified than a typical stock portfolio. So instead of just stocks and bonds. This includes real estate and emerging markets, and so it gives you more diversification there.

It does have higher long-term growth potential than a traditional 60 40 portfolio. And REITs in emerging markets have historically provided higher returns than bonds and has less volatility than a hundred percent stock portfolio because bonds and REITs help cushion during market downturns. Now the drawbacks are, it's more complex than like a simple three fund portfolio or a Warren Buffett portfolio or a couch potato portfolio for that matter.

Uh, and emerging markets are more volatile so they can underperform during recessions, which is gonna be tough. And then bonds limit growth potential with that 30% bond allocation. But that's why he has some more risky stuff with the bond allocation put together. That was his thought process. Now, what is the performance over the last 30 years?

It's right around average of 8% per year with 10,000 invested growing to a little over a hundred thousand dollars in 2024, and it outperforms traditional 60 40 portfolios, but underperforms all stock portfolios over long periods of time. So this does not perform better than most of these stock portfolios.

So its best year was 26%. In 2003 when emerging markets and REIT surge, its worst year was 2008. Like a lot of these other ones, which it was 24% in 2008. Not terrible though. Compared to some of these other ones. And Reese crashed over 40% because as you know, there was a huge real estate issue. Uh, in 2008. Um, during the tech boom, it lagged behind a hundred percent.

Stock portfolios did not do as well as stocks did. And during the.com crash, stocks fell, but bonds and re soft in the blow. And then during the covid to 19 crash stocks, Andre Crash. But bonds help limit losses. So its biggest risk is that REITs are highly sensitive to interest rate changes. That is a big, big deal for a lot of people, uh, which is why I don't own a ton of REITs because interest rates can shift those sometimes.

And so rising rates can hurt real estate investments and then emerging markets can be volatile, um, and they can have more volatility in some of these other options that we're talking about here. So that is the other side of this coin, for sure. So who should use this strategy? It's great for long-term investors who want a day diversified portfolio and those who want exposure to real estate and emerging markets or investors looking for a mix of growth and stability.

If that's you and you're looking for growth and stability, maybe that's an option for you. But people who want a simpler, low maintenance portfolio, this is not for you or investors who don't believe in international or reinvesting. This is not for you at all, and anyone who needs liquidity. REITs and emerging markets can be highly volatile and it is not great for liquidity.

So this is something definitely to look into. If you've got an endowment fund or something like that, that's fine. Um, but not the best portfolio probably for the individual investor out there unless you really think this can do better in the future. So do your own research on that one. But that is my quick 2 cents, uh, by looking at this one.

So let's get into number nine, which is going to be the coffee house portfolio. Alright, I'm next. We have Bill Schulz's Coffee House portfolio. Now the coffee house portfolio was created by Bill Schultes, who is a financial advisor and author of the Coffee House Investor. Now it is designed to be a diversified, imp passive portfolio that balances growth instability.

So. Unlike the 60 40 portfolio, which splits investments between stocks and bonds, the coffee house portfolio takes a more diversified approach by spreading stocks across multiple categories. So if you look at a typical 60 40 portfolio, maybe you'll have 60% in. A s and p 500 index fund and maybe a little international fund over there, and then 40% is gonna be in bonds.

Well, this kind of breaks it down even further and makes it to where it is, honestly a little more complicated. But he has an asset allocation of 60 40. It's just a little more complicated and broke down. So 10% goes to large cap stock. So the s and p 510% goes to large cap value stocks, which is high quality companies trading at lower valuations.

Then it goes 10% to small cap stocks. Which is companies with high growth potential. Then 10% small cap value stocks, which are smaller companies that may be undervalued. Then we have 10% in international stocks, which are exposure to global markets. Then 10% to REITs and 40% to bonds. So. Here are some options here.

For the large cap stocks we have V-F-I-A-X and Fidelity's 500 index fund V-F-X-A-I-X for the large cap value. Uh, Vanguard has a value index fund, which is V-V-I-A-X, or you can look at Fidelity's large cap value index fund, which is F-L-C-O-X. Now for small cap stocks, Vanguard has a small cap index fund, which is vs Max, and Fidelity has a small cap index fund, which is FS, s, and X.

Then there's some small cap value funds, like V-S-I-A-X and iShares, which has IWN. And then for international stocks, we've talked about this a ton of times already, but V-T-I-A-X and then Fidelity has the International Fund of V-S-P-S-X. And then for REITs, you got VNQ, which is Vanguard's re ETF, or Schwab has SCHH.

And then for Vanguard's bonds, uh, we have V-B-T-L-X for the total Bond Market Index Fund. And for the Fidelity US Bond Index Fund, it's fx. Max n ax. And so that is how you can kinda look at some of these funds. That's a lot of funds though. I mean, we are looking at seven different funds in one portfolio just to get to a 60 40 allocation.

That to me, is where you get a little more over complicated, but it's not as up as complicated as the, uh, next one we'll get into here in a second, but let's just talk through this a little bit more. So why is this constructed this way? So he believes that the coffee house portfolio is based on three key principles.

One is broad diversification across market segments. And so instead of just holding us large cap stocks, he wanted to add in small cap stocks. He wanted to add in value stocks, international funds reach. All these different things which are gonna provide additional, uh, diversification and exposure to other markets.

And then he also has lower risk with bonds with that 40% going towards bonds. And so that is gonna be one that a lot of investors may be able to benefit from as well if you are looking again to hedge against the downside. And so that's what that's for. Um, bonds as a hedge against that downside allocation.

And then he states that he's looking for a simple, long-term approach. I would argue this is not simple, but that's what he states. The portfolio is passive. There is no market timing or stock picking, so that part, sure. And investors rebalance once a year to stay invested for decades. Now, why this may be better option for some people, it is more diversified than a 60 40 portfolio.

So if you're looking for additional, uh, diversification, that may be for you, it has lower volatility. Than a hundred percent stock portfolios. And then it is simple and easy to manage in comparison to maybe stock picking, like individual stock picking. This is a little easier than that. Now, drawbacks are that it has lower returns than a hundred percent stock portfolios, and the 40% bond allocation limits the upside potential to that.

Uh, secondarily though. It requires multiple funds. This is a seven fund portfolio, which is just tough in my opinion, to manage, to rebalance all of that different stuff. And then international stocks and REITs can also be volatile, uh, which makes it a little more volatile in some sectors. If one sector's doing portfolio, it could pull down a portion of your portfolio.

Depending on what's going on now, what's the performance over the course of the last 30 years? The annualized return is 8% per year, so $10,000 invested grew to a little over a hundred thousand dollars, uh, over the course of the last 30 years, and it performed actually slightly better than a 60 40 portfolio, but less than all stock portfolios.

Now, it's best year was 1995, where it had a 28% gain. Its worst year was 2008, where it only had a 20% loss. So it hedged against those losses, but still had a great gain in the big gain years. But it lagged behind the, during the tech boom and during the.com crash, it also had much less than the s and p 500 because of its bonds and small cap diversification.

And then during the 2008, financial crisis stocks dropped 37%, but this portfolio only lost 20%. So it's a great hedge against some of that volatility. And then its biggest risk is international stocks and REITs are gonna add a lot of volatility and then bonds can lag. In high inflation environments. Again, same risks as some of these other ones.

Um, and so it's great for investors who want maybe own more funds, but have a diversified portfolio and who want more growth than a 60 40 portfolio can provide. Uh, this may be one for you and then long-term investors who don't wanna stress about that market timing. That may be would for you, but it's not ideal for investors who want that maximum growth or people who want the simplest portfolio possible.

This is not simple whatsoever. Um, and so it's a solid middle ground strategy. Maybe you like to, to own different funds, you like to look into funds a little more and get a little more complicated, then more power to you. There's nothing wrong with that. Some people love that stuff. I know a lot of our listeners do.

And so that may be one for you, uh, if you are looking for that. So, uh, that is going to be it for that one. And then we are gonna get into the last one next. Alright, the last one is Paul Merriman's, ultimate Buy and Hold portfolio. Now, Paul has been on this podcast and he was a great interview. You gotta check that one out.

He is absolutely amazing to listen, talk about investments, um, but he has by far the most complicated portfolio out of anybody on this list. And we're gonna get into it here in a second. He calls this the ultimate buy and hold portfolio and who Paul is. Paul is a financial educator and author known for his expertise in diversified long-term investing.

So Paul is a staple in the long-term investing community, um, and he's a great, great person overall. Now, his portfolio is designed to maximize returns by spreading investments across. Multiple asset classes, like most of these are, uh, with an emphasis on small cap and value stock. So if you've ever heard us talk when we talk to Paul, he really dove deep into why he loves small cap stock.

So if you're someone who's like, well, why would I add small cap to my portfolio? Make sure you listen to that episode. 'cause I think it's really valuable, um, to listen to Paul talk about that. Now this strategy expands on the three funding coffeehouse portfolios by adding even more small cap value in international stocks to increase diversification and returns.

Now, this is a stock 80% bond, 20% split, but the stock allocation is really broken down. In fact, we have, um, a ton of funds here, 10 different stock funds with one, and then it bonds as well. So let's look at this. Alright. 6% goes to us large cap blend, meaning the s and p 500. 6% to US large cap value stocks, which is high quality companies trading at lower valuations, 6% to us small cap blend, which is growth focused on smaller companies, 6% to us small cap value, so the highest returning asset class.

Historically, 6% to international large cap blend, 6% to international large cap value. 6% to international small cap blend, which is global small cap stocks, and 6% to international small cap value, which is global small cap value stocks, 6% to emerging markets, which is high growth economies like China, India, and Brazil, and 6% to REITs, which just gives you the real estate exposure and then 20% to bonds.

20% of bonds. Uh, thank you for not breaking those bonds down, Paul. That would be even more funds that we would have to own. Alright, so the common funds here are going to be first is the large cap stocks. You can look at like the s and p 500 index funds for the US large cap value. Vanguard has a value index fund or V-V-I-A-X, uh, for us small cap blend.

Vanguard has a small cap index fund, which is called VS MAX for the small cap value. Vanguard has VS. IAX or iShares says IWN. And for the international large cap, you can look at something like the developed market index fund or V-T-M-G-X or F-S-P-S-X. And Paul writes about the funds he actually likes a lot too in his writing.

So you can also look at those. Uh, the international small cap value. Vanguard has an FTSE, all World US small Cap, ETF or VSX, and that is an interesting one. And then emerging markets. Vanguard has the emerging market stock index fund, which is V-E-M-A-X, and iShares has one that is EEM. And then for REITs we have Vanguard's, VNQ, and Schwab has SCHH.

And then for bonds, uh, V-B-T-L-X is Vanguard's and fx and a X's Fidelity's. Now here's why it's constructed this way. So his ultimate buy and hold portfolio follows three core principles. One is diversification across all stock sizes, styles, and regions. So his goal is to get as diversified as you possibly can.

So instead of holding just a total market or s and p 500 fund, this portfolio spreads risk across. All large cap and small cap value funds. Now, the small cap and value funds have historically outperformed the s and p 500 over long periods, which is why he does this now for long-term growth volatility.

He has a 20% bond allocation that stabilizes returns while allowing for strong stock driven growth. And REITs and emerging markets add alternative asset exposure, which is why he has those in there as well. Now. Lastly, uh, he loves small cap and value stocks and he talks more about that in that episode if you haven't heard it.

Uh, but we're gonna go through how this performed over the course of the last couple of years, but why might this be better than other portfolios? If you want a more diversified portfolio than any other portfolio on this list, this is definitely gonna be the one. If you want higher expected returns than traditional stock bond portfolios, you're gonna see this has actually performed very well.

Um, and if you want better risk management than a hundred percent stock portfolios, then this is gonna help you manage that risk. Because that 20% bonds helps with that volatility. Now, the small cap was also gonna give you that as higher expected returns because the small cap in value can tilt and enhance long-term returns.

Now, some drawbacks. This is a complex portfolio. This is as complex as a lot of people are willing to get because there is a lot of, you gotta track multiple funds and you gotta rebalance regularly. And then lower returns than a hundred percent stock portfolios in bull markets because that bond allocation and then international and small cap stocks can underperform at times.

And so that is some of the drawbacks. Now let's look at the performance over the last 30 years. Okay. Annualized return is 9% per year. Very good in on this list. $10,000 invested in 1994, grew to 125,000 in 2024, and it outperforms a traditional 60 40 and three fund portfolios, but is more volatile than simpler strategies.

Now how it performs in good and bad times Its best year was 2003 with a 30% increase because small caps and emerging markets surged and it boost the portfolio of performance. Its worst year was 2008 with a 25% loss. And so that is the stock heavy allocation meant a bigger drop in bond heavy portfolios, but less than all stock strategies.

And then in the tech boom, uh, it performs better than the s and p 500 only portfolio due to the small cap performance. So like if you have a small company that's surging. Small caps are gonna do really well, and then during the.com crash, it also lost less than a pure s and p 500 portfolio thanks to small cap and bond allocations.

During the COVID-19 crash, it dropped 25% in March, 2020, but emerging markets and small caps lagged early, but outperformed later. And the biggest risk, it has more complexity and more management. If you like managing your portfolio, maybe this is for you and it requires monitoring those multiple funds, but it also has higher volatility.

Than simpler portfolios. Um, and so here's the verdict. Who is this for? Investors looking for maximum diversification is one. It is for people willing to manage multiple funds and optimize that long-term growth. And those who believe that small cap and value stock performance is gonna be a big, big deal.

It is not ideal for investors who want simple low maintenance strategy. For a lot of you, it's not gonna be this one. Uh, people who want to track multiple funds and rebalance often, and then conservative investors who handles higher short-term volatility. This is not for you as well. So the ultimate buy and hold portfolio is one of the most diversified strategies by far, but it is a beast to manage overall some of these simpler, fun portfolios, and its complexity is very difficult.

And so that is gonna be the 10 portfolios that we talk about in these two episodes. I'm, so, we dug in the weeds in this one, and I'm, I hope you stuck with me here until the end. Uh, if you want to know which one performed the best is actually number one. So, number one with the a hundred percent V-T-S-A-X actually performed the best.

And Warren Buffett's portfolio was a close second, and those are the two highest performing ones because they have that high stock allocation. But it depends on your risk tolerance. Again, it depends on where you are in life, and it depends on what you want to do with your money going forward before you.

Invest in any of these. You need to do your own research and make sure you talk to a professional. Listen, thank you guys again for listening to this podcast episode. I truly appreciate each and every single one of you. If you're getting value of this episode, consider sharing it with a family member or a friend and leave that five star rating and review.

Cannot Thank you guys enough for leaving those five star ratings in. Reviews. If you are interested in learning how to invest in index funds and ETFs, we have a course called Index Fund Pro that teaches you exactly how to do that, and so make sure that you check that out as well. Again, thank you guys so much for listening to this episode, and we will see you on the next episode.