The following table lists 2016 total returns for various examples of “lazy portfolios”.
Some of the portfolios (Coffeehouse and Coward’s) are designed as 60/40 stock/bond portfolios. Other portfolios (Armstrong Ideal and Swensen) are designed as 70/30 stock/bond portfolios. The two-fund, three-fund, and four-fund portfolios are scaled to similar stock/bond allocations. The returns are derived from investments in investor share class Vanguard index funds.¹ Lower cost admiral share class funds would add approximately +0.10% to returns. Detailed descriptions of each portfolio’s annual returns are linked.
2016 total return
|Ferri Core four||6.85%||7.57%|
|Vanguard Core four||6.89%||7.51%|
While the stock/bond allocations of the portfolios are similar, sub asset class allocations differ, accounting for difference in returns. The stock allocation differences include:
- Value and small tilts: The Coffeehouse, Coward’s, and Armstrong Ideal portfolios employ value and small tilts to the US stock portfolio allocation. In 2016 value stocks outperformed growth stocks. Small cap stocks also outperformed large cap stocks.
- REITs: The Ferri Core Four, Coffeehouse, Coward’s, Armstrong Ideal, and Swensen portfolios include an allocation to equity REIT index funds. In 2016 equity REITS underperformed the overall US market.
- International stocks: Each of the portfolios include international stocks, but with differing allocation ranges. International weighting in the portfolios ranges from a low of 10 percent in the Coffeehouse portfolio to a high of 30 percent for the Armstrong Ideal portfolio. In 2016 international stocks underperformed US stocks. Within the market, emerging market stocks outperformed developed market stocks.
Bond allocation differences include:
- Bond maturities: The Coward’s and Armsrong Ideal portfolios employ short-term bonds in the bond allocation. All other portfolios use intermediate-term bonds. In 2016 short-term bonds underperformed intermediate-term bonds.
- International bonds: The Vanguard four-fund portfolio has an allocation to hedged international bonds. All other portfolios invest in US bonds. In 2016 international bonds outperformed US bonds.
- Inflation-indexed bonds: The Swensen portfolio is the only portfolio with an allocation to US inflation-indexed treasury bonds. In 2016 US inflation-indexed bonds outperformed US nominal bonds.
2016 asset class benchmark index returns:
|CRSP Total US market||12.68%|
|CRSP US Value||11.75%|
|CRSP US Small||18.26%|
|CRSP US Small Value||24.82%|
|MSCI US REITS||8.60%|
|FTSE Global All Cap ex US Index||4.72%|
|US Barclays Aggregate||2.75%|
|US Barclays 1-5||1.57%|
|Barclays US Trsy Inflat Prtcd Index||4.68%|
|Barclays Global Aggregate ex-USD hedged||4.90%|
The following tables provide historical asset class and portfolio returns.
Asset class returns
The differential in longer term portfolio returns is mostly dependent on the returns of the market segments each portfolio weighs in its allocations. The table below provides equity index returns over the ten and fifteen year holding periods.²
|MSCI Total Market||7.25%||6.50%|
|MSCI Large Cap||7.18%||7.02%|
|MSCI Large Value||5.29%||7.29%|
|MSCI Small Cap||8.21%||9.60%|
|MSCI Small Value||7.39%||10.24%|
|MSCI US REITS||4.96%||10.72%|
|FTSE Global All Cap ex US Index||1.53%||6.53%|
Bond selection also differentiates returns. Thus, while both the Coward’s portfolio and the Armstrong Ideal portfolios employ short-term bond allocations, the Coward’s portfolio uses short-term investment grade bonds, which have provided higher returns over investment periods. The Swenson portfolio uses intermediate treasuries and treasury inflation protected bonds.³
|Bond returns||Total bond||Intermediate Treasury||TIPS||ST bond index||ST investment grade|
Portfolio returns are provided in the following tables.
The coefficient of variation statistic is a simple measure of risk adjusted return (standard deviation divided by the mean return.) The the lower the ratio of standard deviation to mean return, the better your risk-return trade off.
Keep in mind that past performance does not predict future performance.
60/40 allocation portfolios
|Vanguard Core four||4.04%||–||–||–|
|Ferri Core four||4.68%||7.88%||5.36%||6.62%|
|Vanguard Core four||4.20%||–||–||–|
|Ferri Core four||4.51%||5.53%||11.49%||10.74%|
Coefficient of variation
|Vanguard Core four||1.03||–||–||–|
|Ferri Core four||0.95||0.69||1.92||1.49|
70/30 allocation portfolios
|Vanguard Core four||4.13%||–||–||–|
|Ferri Core four||4.99%||8.83%||5.70%||7.06%|
|Vanguard Core four||4.52%||–||–||–|
|Ferri Core four||4.87%||6.55%||13.46%||12.71%|
Coefficient of variation
|Vanguard Core four||1.08||–||–||–|
|Ferri Core four||0.96||0.72||2.14||1.66|
¹ The lone exception to using investor shares in return calculation is for the Developed markets asset class. We use the returns history of the former Vanguard Tax-Managed International fund, which after a 2013 merger, was rechristened the Vanguard Developed Market Index Fund. Historically, the fund issued what were essentially admiral shares to investors. For consistency, we use admiral share returns for this fund.
² Index return data sources are from the following list of Bogleheads® wiki pages:
- US total market index returns
- US large cap index returns
- US small cap index returns
- US equity REIT index returns
- Global ex US market index returns