Roger Gibson’s 5 Asset Portfolio – Strategy, Allocations, Performance, Returns Analysis

The 5 Asset Portfolio by Roger Gibson is a “lazy” index diversified portfolio that allocates assets across 4 asset classes: stocks, bonds, REITs, and commodities. These 4 asset classes are divided into 6 categories: U.S. stocks, international stocks, U.S. bonds, international bonds, U.S. REITs, and commodities.

The 5 Asset Portfolio strategy can be implemented using 6 different index ETFs that are well diversified and perform well. There is no need to pick individual stocks, bonds, and other asset classes, thus avoiding spending much time and effort on allocations.

In this article, we will describe in detail the structure of The 5 Asset Portfolio and backtest it on historical price data. Looking ahead, we can say that according to our backtests over the past 16 years, The 5 Asset Portfolio has the following performance stats:

• Compound annual return (CAR): 4.47%;
• Maximum drawdown (MDD): -48.28%;
• CAR/MDD ratio: 0.09;
• Standard deviation: 16.39%;
• Sharpe ratio (with a risk-free rate of 3%): 0.09.

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Who Is Roger Gibson

Roger is best known as the author of the classic investment book Asset Allocation: Balancing Financial Risk (McGraw-Hill). First published in 1989 and released in its fifth edition in 2013, it remains the best-selling book on asset allocation. The book is published in German, Japanese, Korean, Chinese, Indian and Russian.

Roger Gibson has been a frequent speaker for investment professionals at national and international conferences for 30 years. He is a member of the steering group and former chairman of the Fiduciary Standards Committee, a group of leading financial advisors working to meet stricter standards for all those who give investment advice.

Roger is a Certified Financial Analyst (CFA) and holds an MBA from Carnegie Mellon University.

What Is The 5 Asset Portfolio

The 5 Asset Portfolio consists of the 6 following asset categories with their respective total weights:

Asset category	Weight in the portfolio
U.S. Stock Market	20.00%
International Stock Market	20.00%
U.S. REITs	20.00%
U.S. Bonds	14.00%
International Bonds	6.00%
Commodities	20.00%

Stocks In The 5 Asset Portfolio

Stocks are equity securities representing an ownership share in a corporation and giving the right to receive dividends if paid.

Historically, stocks have shown the highest returns, outperforming all other asset classes such as bonds, gold, and real estate. Thus, you have been rewarded for taking this risk.

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 5 Asset Portfolio includes the following types of stocks:

• U.S. Stock Market – U.S. mid- and large-cap growth and value stocks that virtually replicate the benchmark U.S. stock index S&P 500;
• International StockMarket – non-U.S stocks that allow you to increase diversification by reducing the overall correlation of the portfolio. International stocks are located on other continents (Europe, Asia, Pacific, etc) and have a low correlation with U.S. stocks.

For stocks, we have picked these ETFs, which are well diversified, have high liquidity, and a long performance history:

Asset Category	ETF Name	ETF Ticker
U.S. Stock Market	SPDR S&P 500 ETF Trust	SPY
International Stock Market	iShares MSCI EAFE ETF	EFA

Bonds In The 5 Asset Portfolio

Bonds are fixed-income debt securities that are less profitable and more reliable than stocks. As a bond owner, you are a lender, not an owner of the business.

Adding bonds to a portfolio reduces its overall return but makes the portfolio less volatile and more resilient to drawdowns during periods of crisis (according to history).

Bonds also have a low correlation with stocks, which improves portfolio diversification.

The 5 Asset Portfolio includes the following types of bonds:

• U.S. Bonds – the whole range of bonds with different maturities and issued by different institutions, including short-, medium- and long-term U.S. treasury, municipal, and investment-grade corporate bonds;
• International Bonds – the whole range of bonds with different maturities and issued by different institutions, including short-, medium- and long-term non-U.S. treasury, municipal and investment-grade corporate bonds;

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
U.S. Bonds	Vanguard Total Bond Market Index Fund	BND
International Bonds	SPDR Bloomberg International Treasury Bond ETF	BWX

REITs In The 5 Asset 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 more diversified.

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

Commodities In The 5 Asset Portfolio

Commodities are alternative types of investment and include metals, wood, oil, gas, grains, meat, and many other tangible commodities.

The peculiarity of commodities is that their market dynamics do not depend on each other and do not depend on the market dynamics of stocks, bonds, REITs, and other “traditional” assets.

Including commodities in a portfolio reduces the overall correlation of portfolio assets, making the portfolio more diversified and sustainable.

For commodities, we have picked these ETFs, which are well diversified, have high liquidity and a long performance history:

Asset Category	ETF Name	ETF Ticker
Commodities	Invesco DB Commodity Index Tracking Fund	DBC

Backtesting Of The 5 Asset Portfolio

Let’s backtest The 5 Asset Portfolio under the following conditions:

• A 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;
• The backtesting interval from 2007 to 2023.

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:

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Yr%
2007	2.5%	-0.2%	0.4%	1.9%	1.0%	-2.0%	-2.3%	0.8%	4.7%	3.4%	-2.9%	0.1%	7.5%
2008	-1.7%	0.9%	0.8%	4.2%	2.0%	-3.1%	-2.8%	-1.9%	-6.5%	-19.5%	-7.9%	5.0%	-28.6%
2009	-9.3%	-9.3%	5.3%	9.3%	7.8%	-1.2%	6.3%	3.6%	3.1%	-0.7%	4.8%	1.5%	20.8%
2010	-4.3%	2.6%	4.3%	1.9%	-6.9%	-2.5%	7.1%	-2.1%	6.4%	3.3%	-1.9%	5.8%	13.5%
2011	2.4%	3.2%	-0.1%	4.1%	-1.5%	-2.1%	0.4%	-3.6%	-8.8%	8.1%	-1.5%	0.3%	-0.1%
2012	4.2%	2.8%	1.2%	-0.1%	-6.5%	3.8%	2.1%	2.3%	0.9%	-1.1%	0.9%	1.4%	12.0%
2013	3.0%	-0.8%	1.7%	2.2%	-2.3%	-2.2%	3.0%	-2.1%	2.6%	2.6%	-0.4%	1.3%	8.9%
2014	-1.5%	4.3%	0.1%	1.5%	1.2%	1.3%	-1.8%	1.5%	-4.0%	1.7%	-0.2%	-2.2%	1.7%
2015	-0.1%	2.4%	-1.6%	1.4%	-0.6%	-1.8%	-0.6%	-4.1%	-1.6%	4.4%	-1.5%	-1.5%	-5.4%
2016	-3.6%	-0.5%	5.9%	2.2%	0.8%	2.3%	0.9%	-0.6%	0.9%	-2.2%	-0.4%	2.7%	8.2%
2017	1.0%	2.0%	-0.2%	0.5%	1.0%	0.5%	2.2%	0.4%	0.9%	1.5%	1.6%	1.1%	13.3%
2018	2.1%	-3.8%	0.6%	0.9%	1.3%	0.1%	1.0%	0.9%	0.3%	-4.9%	-0.5%	-4.9%	-6.9%
2019	6.9%	1.8%	1.7%	1.6%	-3.3%	4.0%	0.2%	-0.4%	1.6%	1.7%	0.6%	2.5%	20.3%
2020	-1.7%	-5.7%	-12.9%	5.4%	3.9%	2.5%	3.8%	3.1%	-2.4%	-2.4%	8.8%	3.4%	4.2%
2021	0.1%	3.2%	2.1%	5.2%	1.9%	1.5%	2.1%	0.9%	-1.9%	4.9%	-3.6%	5.3%	23.5%
2022	-2.3%	-0.9%	3.6%	-3.2%	1.0%	-6.8%	4.0%	-4.0%	-8.4%	4.3%	5.7%	-3.1%	-10.8%
2023	5.7%	-3.9%	1.6%	1.0%	-3.0%	4.6%	N/A	N/A	N/A	N/A	N/A	N/A	5.8%

Portfolio performance statistics compared to benchmark S&P 500 Total Return index:

Statistical Metric	Portfolio	S&P 500 TR
Annual Return %	4.47%	9.24%
Exposure %	99.50%	100.00%
Risk Adjusted Return %	4.50%	9.24%
Max. drawdown	-48.28%	-55.19%
CAR/MaxDD	0.09	0.16
Standard Deviation	16.39%	22.64%
Sharpe Ratio (3% risk-free)	0.09	0.26

Roger Gibson 5 Asset Portfolio – conclusion

• The 5 Asset 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% to stocks. You can mix different equity ETFs; for example, allocate 60% of the funds to US stocks and the remaining 40% to international stocks;
• If you are sensitive to drawdowns and do not care about the maximum possible return, then add bond ETFs to your portfolio. Bonds reduce portfolio drawdowns at the cost of portfolio returns;
• International bonds and commodities are the worst performers in our backtesting, but past performance is not indicative of future results;
• Be disciplined and strictly follow the asset allocation rules that you have chosen for yourself. There are many “lazy” portfolio strategies – some we have published and backtested.

FAQ:

How are the 5 Asset Portfolio assets divided, and what are the weightings?

The portfolio consists of U.S. stocks, international stocks, U.S. REITs, U.S. bonds, international bonds, and commodities. The respective weightings in the portfolio are U.S. Stock Market (20%), International Stock Market (20%), U.S. REITs (20%), U.S. Bonds (14%), International Bonds (6%), and Commodities (20%).

What are the historical performance stats of the 5 Asset Portfolio?

According to backtests over the past 16 years, the 5 Asset Portfolio has a compound annual return (CAR) of 4.47%, a maximum drawdown (MDD) of -48.28%, a CAR/MDD ratio of 0.09, standard deviation of 16.39%, and a Sharpe ratio (with a risk-free rate of 3%) of 0.09.

What are the types of stocks included in the 5 Asset Portfolio, and which ETFs are used?

The portfolio includes U.S. Stock Market ETF (SPDR S&P 500 ETF Trust – SPY) and International Stock Market ETF (iShares MSCI EAFE ETF – EFA). These ETFs represent mid- and large-cap growth and value stocks, providing diversification across U.S. and non-U.S. stocks.