Let me admit my “mistake” on this. I am using the Lazy Portfolio. Gold, US treasury bills or their equivalent, longer term US Government bonds and the S&P 500.
The mistake is cherry picking a portfolio. Why gold and not silver? Why gold and not a broad commodity index? Why the US stock market? Why not the MSCI World? Why US treasuries and bonds? Why not a basket of world debt? Should I be including Euro and Swiss short term Govs where the interest rates are currently negative? Should I be looking at constant maturity schemes for longer term bonds rather than conventional approaches? If its “All Weather” you are looking for then you need to answer these questions and a few more. Don’t cherry pick. Its a nonsense and in the long term could be extremely damaging.
Think Trump. Think Kim Il Wotsit. Think any number of other nice people who could blow up their countries or economies in the twinkling of an eye. Do you really want to cherry pick? Or should you go as global and as wide as you can. I know my preference. Only you can choose yours.
For my own investment I would choose a basket of commodities, the MSCI World, and world debt. Or at least major economy debt. Would I include Greece, Italy, Portugal and Turkey in my debt basket? Should I? A question for another day perhaps.
Anyway I chose the lazy portfolio because yesterday I trashed the cherished MINVAR approach (using that portfolio) by pointing out it amounts to trend following and can have you “dangerously” exposed to a portfolio consisting at times of 100% stocks. Probably not very bright.
Is there an alternative that appeals to me? Ignoring for the moment my dislike of the Lazy Portfolio.
A useful benchmark is the UCRP – uniform constant rebalanced portfolio. Or equal weighting with constant rebalancing to those of us who don’t go for poncy names. Instead of constant rebalancing let us assume monthly rebalancing.
Here are the results:
Stat UCRP S&P 500 ------------------- ---------- ----------- Start 1988-01-04 1988-01-04 End 2016-12-20 2016-12-20 Risk-free rate 0.00% 0.00% Total Return 665.76% 1593.83% Daily Sharpe 1.17 0.64 CAGR 7.28% 10.26% Max Drawdown -19.84% -55.25% Monthly Vol (ann.) 6.19% 14.27%
Stat Inverse Volatility Benchmark ------------------- -------------------- ----------- Start 1989-01-04 1989-01-04 End 2016-12-20 2016-12-20 Risk-free rate 0.00% 0.00% Total Return 552.48% 1395.44% Daily Sharpe 1.56 0.63 CAGR 6.94% 10.16% Max Drawdown -12.47% -55.25% Monthly Vol (ann.) 4.76% 14.37%