Frank Armstrong’s Ideal Index portfolio – 2018 update

frank-armstrong-262x300

Frank Armstrong III, investment advisor and author, offers the following seven fund “Ideal Indexed” portfolio in his book, The Informed Investor: A Hype-Free Guide to Constructing a Sound Financial Portfolio (published December 16, 2003).

The portfolio employs a 70% equity / 30% fixed income split, consisting of six equity asset class funds and one fixed income fund.

In 2018 the Ideal portfolio produced the following return:

Year Return
2018 -6.81%

The equity slice holds a 31% portfolio allocation to international stocks. The US stock allocation has a value tilt, as the value allocations are larger than the blend and growth allocations. The asset class allocations include:

  • US large blend stocks : 6.25%
  • US large value stocks : 9.25%
  • US small growth stocks: 6.25%
  • US small value stocks : 9.25%
  • US REITS : 8.00%
  • International stocks: 31.00%
  • US short-term bonds: 30.00%

The chart below (click to enlarge) shows the portfolio allocation (rounded values in the pie chart).

image23

Ideal Indexed portfolio

Fund selection

The portfolio can be implemented using the following Vanguard funds. With Vanguard having lowered the minimum investment for admiral share class funds in 2018, we now use these lower cost funds for portfolio allocations. The portfolio can be implemented with any suitable index fund or exchange-traded fund, but the Vanguard portfolios have longer performance histories.

Fund Ticker Expense ratio
500 Index VFIAX 0.04%
Value Index VVIAX 0.05%
Small Growth Index VSGAX 0.07%
Small Value Index VSIAX 0.07%
REIT Index VGSLX 0.12%
Total International Index VTIAX 0.11%
Short-term Bond Index VBIRX 0.07%

Returns

The tables below gives returns for the portfolio, using Vanguard  index funds. We use admiral share class returns in 2018; prior years reflect investor share performance. The returns period includes portfolio performance during the two bear markets in the 2000 – 2010 decade, as well as subsequent recoveries. Keep in mind that past performance does not forecast future performance.

Annual returns

Year Portfolio
2018 -6.81%
2017 14.58%
2016 7.76%
2015 -1.15%
2014 4.70%
2013 15.66%
2012 12.80%
2011 -3.22%
2010 13.35%
2009 23.93%
2008 -26.11%
2007 5.95%
2006 17.84%
2005 8.23%
2004 14.70%
2003 27.25%
2002 -8.14%
2001 -3.23%
2000 2.04%
1999 13.60%

Compound returns

Period Return Standard deviation Sharpe Ratio
3yr CAGR 4.79% 10.93% 0.47
5yr CAGR 3.47% 8.27% 0.42
10yr CAGR 7.72% 9.24% 0.84
15yr CAGR 6.04% 12.37% 0.46
20yr CAGR 5.92% 12.43% 0.40

See Frank Armstrong Ideal Indexed portfolio, google drive spreadsheet for performance data.

About

Barry Barnitz, administrator of both the Bogleheads® wiki and of Financial Page, a Bogleheads® blog. In addition I serve as an administrator of finiki, the Canadian financial wiki, as an administrator of la Wiki Bogleheads® España, and as an administrator of the John C. Bogle Center for Financial Literacy site.

Tagged with:
Posted in Market statistics, Portfolios
Archives
Categories
Follow Financial Page on WordPress.com
%d bloggers like this: