Lazy Portfolio vs Slice & Dice

[Midpack]

This question has come up directly and indirectly a few times lately, so I wondered how my (Four Pillars) slice & dice portfolio was doing versus a "lazy portfolio." For comparison I took my actual holdings and allocations and compared them to a lazy portfolio using the same overall allocations (see pie charts). My methodology is basically the same as a lazy portfolio (low expense index funds - disciplined rebalancing to AA target), I just have some "tilts" and other choices of my own in place of the broader fund "lazy" categories.

I was pleased with my results. But the volatility of my portfolio (measured as std dev) is a little higher than a lazy portfolio, confirming my avatar. Many of you will see where I've opted for higher returns and the volatility that comes with those choices - though I'm getting more return than risk (my equity SD is almost equal to the return whereas the lazy SD is higher than those returns).

However, my point was also to demonstrate (as many others much smarter than I am have already) that a lazy portfolio will perform almost as well as a portfolio with only three broad funds - and the lazy portfolio may outperform in the long run. IOW, decent returns don't have to be rocket science AT ALL!

I hesitated to show the pie charts at all for that reason, and the percentages were deliberately left off. My purpose is NOT to make fund or any other recommendations.

FWIW...For 2003 thru 2011

	My Portfolio 59:41	Equiv Lazy Portfolio	My Equity Holdings Only	Lazy Equity Holdings Only
Annual Returns	8.2%	6.9%	9.8%	7.3%
Std Dev (qtrly rtns)	6.1%	5.5%	10.2%	9.5%

[eytonxav]

Good post and analysis, thanks for sharing.

[Chuckanut]

Thank you for your insights. Your methods seem rather successful to me, beating the the Lazy method by 1.4% a year or more. One cannot argue with success.

[Lsbcal]

Nice results Midpack.

Sometimes these things can be a bit period dependent. Lately I've been using two benchmarks: (1) Wellington, (2) my allocations mapped into the index mix of Total Stock Mkt, Total International Stk Mkt, Total Bond Mkt. Both of these benchmarks are surprisingly hard to beat on a consistent basis. If Wellington lagged it might be because small and midcaps start to outperform or international takes off or growth stocks outperform. Since my portfolio has an element of timing, that also plays into comparisons.

Still benchmarks force us to come to terms with our "investment brilliance". At the end of each year I do a compare and write down the investment mistakes that I should try to learn from. Hopefully won't repeat mistakes.

[photoguy]

Quote:

Originally Posted by Midpack However, my point was also to demonstrate (as many others much smarter than I am have already) that a lazy portfolio will perform almost as well as a portfolio with only three broad funds - and the lazy portfolio may outperform in the long run. IOW, decent returns don't have to be rocket science AT ALL!

I think it depends by what you mean by "almost as well". At a quick glance 8.2% versus 6.9% doesn't seem so different from each other, a mere difference of 1.3% which isn't much right? However if we think about the withdrawal rates folks are targeting which may be between 3-4%, that extra 1.3% is huge in my mind.

Another way of thinking about it is that over 9 years an initial portfolio of $1M would have grown to 2.0M versus 1.82M. Personally, I would consider that extra 200K to be significant.

Also if we take off 2-3% per year for inflation, than that would also tend to magnify the differences between the S&D and Lazy portfolios.

[Lsbcal]

Just happened to have the following portfolio results for 2003 thru 2011:

Wellington 7.8% (AA ~ 65/35)
Wellesley 7.0% (35/65)
Dodge & Cox balanced 5.6% (65/35)
SP500 & 5yr Treasury 6.6% (65/35)

Interesting that the Wellesley 35/65 comes so close to the Wellington 65/35.
The year 2008 was very bad for DODBX at -33.6%. It shows the time sensitivity of this information.

[ejman]

Quote:

Originally Posted by Lsbcal Just happened to have the following portfolio results for 2003 thru 2011: Wellington 7.8% (AA ~ 65/35) Wellesley 7.0% (35/65) Dodge & Cox balanced 5.6% (65/35) SP500 & 5yr Treasury 6.6% (65/35) Interesting that the Wellesley 35/65 comes so close to the Wellington 65/35. The year 2008 was very bad for DODBX at -33.6%. It shows the time sensitivity of this information.

Interesting, I ER'd 12/31/2002 and my own results with 15 funds and rebalancing when my 10% wide band equities allocation band was exceeded was 7.5% for 12/31/2002 to 12/31/2011 (asset allocation ranged from 65/35 when I first retired (age 52) to my current 55/45 (age 62). Jeez, I could have bought Wellington and gone to sleep for the last 10 years for all the good worrying and rebalancing did for me.

[Lsbcal]

During that time 2003-2011, Total International (VGTSX) and REITS (VGSIX) reasonably outperformed Total Stk Mkt (VTSMX). This might reverse in the next 10 years ... but who knows? This stuff is so period dependent.

Wellington is mostly large cap value US with a modest foreign allocation. No guarantee it will do quite so well on a comparative basis over the next decade ... but who knows? It could.

[Midpack]

Quote:

Originally Posted by ejman Interesting, I ER'd 12/31/2002 and my own results with 15 funds and rebalancing when my 10% wide band equities allocation band was exceeded was 7.5% for 12/31/2002 to 12/31/2011 (asset allocation ranged from 65/35 when I first retired (age 52) to my current 55/45 (age 62). Jeez, I could have bought Wellington and gone to sleep for the last 10 years for all the good worrying and rebalancing did for me.

Many have made this point before so FWIW.

While Wellington does very well vs lazy portfolios with similar AA, tax efficient fund placement is a good reason to "go lazy" or slice-and-dice for anyone with both taxable and tax sheltered accounts. By holding all my bond funds in tax sheltered accounts, I can control when and how I withdraw and control tax rates somewhat. For an investor with all taxable or all tax sheltered, balanced funds like Wellington can indeed be all you need.
Principles of Tax-Efficient Fund Placement - Bogleheads