The Gone Fishin’ Portfolio by Alexander Green is a “lazy” index diversified portfolio that allocates assets across 4 asset classes: stocks, bonds, REITs and precious metals.
These 4 asset classes are divided into 10 categories: U.S. Stocks, U.S. Small Cap Stocks, European Stocks, Pacific Stocks, Emerging Markets Stocks, Short-Term Investment-Grade Bonds, High-Yield Corporate Bonds, TIPS (Treasury Inflation-Protected Securities), REITs and Precious Metals.
The Gone Fishin’ Portfolio strategy can be implemented by using 10 different index ETFs that are well diversified and have good historical performance. There is no need to pick individual stocks, bonds, REITs and other asset classes, or spending a lot of time and effort on selection and trading/investing.
In this article, we will describe in detail the structure of The Gone Fishin’ Portfolio and backtest it on historical price data. Looking ahead, we can say that according to our backtests over the past 16 years, The Gone Fishin’ Portfolio has the following performance stats:
- Compound annual return (CAR): 5.61%;
- Maximum drawdown (MDD): -43.98%;
- CAR/MDD ratio: 0.13;
- Standard deviation: 15.81%;
- Sharpe ratio (with a risk-free rate of 3%): 0.17.
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Who Is Alexander Green
Alexander Green is the Chief Investment Strategist of the Oxford Club, the world’s largest financial community with over 110,000 members. He worked as an investment advisor, research analyst and portfolio manager on Wall Street for 16 years.
Having gained extensive knowledge and achieved financial independence, Alexander Green retired at the age of 43. Since then, Alexander Green has been living “the second half of his life” by writing the Oxford Communiqué, which has been ranked among the best investment newsletters by Hulbert Digest for more than a decade.
Alexander Green also operates three rapidly growing trading services: The Momentum Alert, The Insider Alert and The True Value Alert.
Alexander Green prefers to work as a writer rather than a licensed investment advisor because he is free to give advice, write what he wants about the market, and be completely objective in his recommendations.
What Is The Gone Fishin’ Portfolio
The Gone Fishin’ Portfolio consists of the 10 following asset categories with their respective total weights:
|Asset category||Weight in the portfolio|
|U.S. Small Cap Stocks||15.00%|
|Emerging Markets Stocks||10.00%|
|Short-Term Investment-Grade Bonds||10.00%|
|High-Yield Corporate Bonds||10.00%|
Stocks In The Gone Fishin’ Portfolio
Stocks are equity securities that represent an ownership share in a corporation and give the right to receive dividends if they are paid. When you are a shareholder of a company, you own a part of the business and get a share of the potential earnings (but also losses – if any).
Historically, stocks have shown the highest returns, outperforming all other asset classes such as bonds, gold, and real estate.
Adding stocks to a portfolio increases its overall return, but makes the portfolio more volatile and more vulnerable to drawdowns during times of crisis.
The Gone Fishin’ Portfolio includes the following types of stocks:
- U.S Stocks – U.S. large-cap growth and value stocks that virtually replicate the benchmark S&P 500 stock index;
- U.S. Small Cap Stocks – U.S. small-cap growth and value stocks that historically outperforms large-cap stocks in terms of returns;
- European Stocks – non-U.S. stocks of different countries that are located on European continent and have a low correlation with U.S. stocks;
- Pacific Stocks – non-U.S. stocks of different countries that are located in the Pacific Ocean area and have a low correlation with U.S. and European stocks;
- Emerging Market Stocks – emerging market stocks have a low correlation with developed market stocks such as U.S. and European stocks and have historically higher returns and risks.
For stocks, we have picked these ETFs, which are well diversified, have high liquidity and a long performance history:
|Portfolio Sector||ETF Name||ETF Ticker|
|U.S Stocks||SPDR S&P 500 ETF Trust||SPY|
|U.S. Small Cap Stocks||iShares Core S&P Small-Cap ETF||IJR|
|European Stocks||Vanguard FTSE Europe ETF||VGK|
|Pacific Stocks||Vanguard FTSE Pacific ETF||VPL|
|Emerging Market Stocks||Vanguard FTSE Emerging Markets ETF||VWO|
Bonds In The Gone Fishin’ Portfolio
Bonds are fixed income debt securities that are less profitable and more reliable than stocks. Bonds are different than stocks. As a bond owner, you are a lender to the company. Bond owners get paid before shareholders, thus the risk is lower.
Adding bonds to a portfolio reduces its overall return, but makes the portfolio less volatile and more resilient to drawdowns during periods of crisis. This makes sense because it’s two very different assets (stocks vs. bonds).
Bonds also have a low correlation with stocks, which improves portfolio diversification.
The Gone Fishin’ Portfolio includes the following types of bonds:
- High-Yield Corporate Bonds – bonds that are issued by private corporations. Pay higher interest rates because they have a lower credit rating than investment grade bonds. High-yield bonds are more likely to fail, so they must pay higher yields than investment-grade bonds to offset investors’ risk;
- Short-Term Investment-Grade Bonds – corporate bonds that usually offer lower yields because they have lower interest rates and a higher credit rating;
- TIPS (Treasury Inflation-Protected Securities) – are a type of Treasury security issued by the U.S. government. TIPS are indexed to inflation to protect investors from a decline in the purchasing power of their money.
For bonds, we have picked these ETFs, which are well diversified, have high liquidity and a long performance history:
|Asset category||ETF Name||ETF Ticker|
|Short-Term Investment-Grade Bonds||iShares 1-5 Year Investment Grade Corporate Bond ETF||IGSB|
|High-Yield Corporate Bonds||iShares iBoxx $ High Yield Corporate Bond ETF||HYG|
|TIPS||iShares TIPS Bond ETF||TIP|
REITs In The Gone Fishin’ Portfolio
Real estate investment trusts (REITs) have the same rewards and risks as “traditional” stocks, but also have a historically low correlation with “traditional” stocks and various types of bonds.
Including REITs in a portfolio reduces the overall correlation of portfolio assets and makes the portfolio itself more diversified and sustainable.
For REITs, we have picked these ETFs, which are well diversified, have high liquidity and a long performance history:
|Asset Category||ETF Name||ETF Ticker|
|REITs||iShares U.S. Real Estate ETF||IYR|
Precious Metals In The Gone Fishin’ Portfolio
Precious metals include metals such as gold, platinum and silver. They are historically inversely correlated with stock markets, especially when the latter is falling.
This is explained by the fact that when stock markets crash, investors massively withdraw their funds from the stock market and begin to massively buy precious metals in order to “wait the storm” in them.
Precious metals are also a good protection against inflation and are widely used in various investment strategies.
For precious metals, we have picked these ETFs, which are well diversified, have high liquidity and a long performance history:
|Asset Category||ETF Name||ETF Ticker|
|Precious Metals||Invesco DB Precious Metals Fund||DBP|
Backtesting Of The Gone Fishin’ Portfolio
Let’s backtest The Gone Fishin’ Portfolio under the following conditions:
- Simple “Buy & hold” strategy is used;
- Annual rebalancing takes place on January 1 of each year;
- Described ETFs with the appropriate weights are picked;
- Historical quotes are adjusted for dividends;
- Backtesting interval from 2007 until today.
Portfolio equity curve:
Portfolio underwater curve (drawdowns, i.e. decline in value from a relative peak value to a relative trough):
Portfolio monthly and annual returns:
Portfolio performance statistics compared to benchmark S&P 500 Total Return index:
|Statistical Metric||Portfolio||S&P 500 TR|
|Annual Return %||5.61%||8.95%|
|Risk Adjusted Return %||5.62%||8.95%|
|Sharpe Ratio (3% risk-free)||0.17||0.26|
Conclusion On The Gone Fishin’ Portfolio
- The Gone Fishin’ Portfolio lags behind the S&P 500 TR index in terms of average annual return, but outperforms the index in terms of drawdowns;
- If you want to get the highest possible return, regardless of the level of drawdowns, then allocate your funds 100% in stocks. You can mix different equity ETFs, for example, allocate 60% of the funds to US stocks and the remaining 40% to international stocks;
- This portfolio is a good example of how over-diversification does not lead to better results. Maybe you should look at simpler portfolios consisting of 1-5 ETFs? In any case, it’s up to you.
- Be disciplined and strictly follow the asset allocation rules that you have chosen for yourself. There are many “lazy” portfolio strategies that you can pick one.