Did you read my recent column,“Doomsday poll: 87% risk of stock crash by year-end?” Surprise, our Lazy Portfolio gurus
totally disagree, aren’t buying into the fear. In fact, they’ve been
riding the bull rally since 2008. Plus they’re predicting a bullish stock market for the next decade.
So forget the end of the bond bull, look past the Fed’s cheap
money, past China’s credit problems, America’s dysfunctional
politicians. Our totally surprising gurus have enormous trust in the
stock market’s future, in their Lazy Portfolio strategies and their
performance in bulls and bears, rallies, meltdowns and recoveries.
So listen closely to the surprising feedback we got from the
brain trust behind four of our Lazy Portfolios: Ted Aronson, lead
partner of the $22 billion AJO Partners; wealth manager Bill Schultheis,
author of “The Coffeehouse Investor”; financial planner Allan Roth,
author of “How A Second Grader Beats Wall Street: Golden Rules Any
Investor Can Learn”; and Scott Burns, chief investment strategist with
AssetBuilder.com and co-author of “The Clash of Generations” and “Spend
‘Til the End.”
They’re upbeat, positive and optimistic about a winning decade ahead. Listen:
Ted Aronson: the Aronson Family Portfolio 11 funds
Ted Aronson is head of AJO Partners, managers of $22 billion.
No retail funds for the public, just institutional retirement money. I
first ran across Aronson in a Barron’s interview. During the 2002
scandals, Aronson headed the nation’s leading professional association
for 70,000 portfolio managers. TheStreet.com even called him America’s
“most honest” manager.
He’s also a rare manager who’s honest enough to tell you where
his own money is invested. “All of my family’s retirement money is in
AJO funds,” says Aronson. “But because the fund trades a lot, it’s not
suitable for taxable investments. So all our family’s taxable money is
in Vanguard’s no-load index funds,” with 40% in domestic, 30% in
international and 30% in fixed income.
What about cashing out today if you worry about the end of the
30-year bull market in bonds? Or the Fed stopping QE’s cheap money? Or
you’re convinced another meltdown’s coming? Aronson calls himself a
“broken record:” If you have a well-diversified portfolio, cashing out
may be costly in the long run. He confirmed his earlier reasons for
staying the course:
“For good reasons and bad, I’d hold tight. The good include my
faith in capitalism and its ability to weather a storm, even one of
biblical proportions. The bad reason is, I have no faith in my ability
to time this sort of thing. Even if I got out in time, I probably
wouldn’t be able to correctly time getting back in!”
Here’s his Weather-The-Storm portfolio for tough times:
- ( 5%) Wilshire 5000 VTSMX -0.23%
- (15%) S&P 500 Index VFINX -0.21%
- (10%) Wilshire 4500 Mid-/Small-Cap VEXMX -0.06%
- ( 5%) MSCI US Small-Cap Growth VISGX +0.07%
- ( 5%) MSCI US Small-Cap Value VISVX 0.00%
- (15%) Emerging Markets MSCI-EMGFree VEIEX -0.96%
- (10%) Pacific Stock Index MSCI-PAC VPACX +0.96%
- ( 5%) European Stock Index MSCI-EUR VEURX -2.68%
- (10%) TIPS: Inflation-Protected Securities VIPSX -1.20%
- (10%) High-Yield Corporate VWEHX -0.34%
- (10%) Long-Term Treasury VUSTX -1.60%
Remember, there are over 10,000 mutual funds to pick from.
Maybe a quarter are passive index funds. So it was amazing to see all of
his family’s portfolio were in no-load low-cost index funds. And he
only needed 11 to build a well-diversified Lazy Portfolio.
Equally amazing: The fact that all eight Lazy Portfolios were developed independently using Vanguard index funds.
Aronson’s long-term view is also typical of all Lazy Portfolio
gurus. His latest advice: “I remain a broken record. The song remains
the same. I am sticking to it. Successful investing includes taking risk
(where bonds clearly fall today, I admit), diversifying and keeping
costs down.”
That’s from a guy who bought into the first index fund launched by Vanguard back in 1976.
Bill Schultheis: the Coffeehouse Investor Portfolio 7 funds
Bill Schultheis spent over a decade as a Smith Barney broker
before publishing “The Coffeehouse Investor,” which Vanguard’s founder
Jack Bogle called one of the best books ever on investing. His portfolio
is so simple: You put 40% in an intermediate bond index fund and the
rest goes 10% in each of the six stock funds. That’s it.
And what a bold, contrarian decision. Why? Because Schultheis
launched his portfolio in 1999. Yes, back then Wall Street was betting
big on the great dot-com, high-tech mania, when 30% returns were
expected for mutual funds. So Wall Street laughed at Schultheis’s 40%
bond allocation.
But nobody laughed during the bear market recession of
2000-2002 when his portfolio was beating the S&P 500 by 15% all
three years and Wall Street lost over $8 trillion of America’s
retirement assets.
How’s the future look? He’s bullish. “There is a lot of talk
about the pending bond bubble. That talk has been going on for the past 5
years, and hasn’t materialized. Recently the 10-year bond yield
increased one-half percentage point, a fairly significant increase.
Whether or not rates will continue to go up is anyone’s guess. On
several occasions the past five years the yield on the 10-year has
risen, only to fall back.”
What about his simple asset allocations? “I am still sticking
with a straightforward allocation of 40% bonds in the Total Bond Fund
for Coffeehouse. However, for investors who want to tinker with this, I
suggest placing half this allocation in a short bond fund, such as
Vanguard’s short-term investment grade fund, VFSTX -0.28% , to help protect in the event of higher rates.”
Then he added: “There is so much fear over a bond bubble. When a
bond portfolio is structured toward the short and intermediate part of
the yield curve, investors shouldwant a bond bubble and higher rates.”
Why, investors can reinvest at higher yields. Investors should “stay
committed, to capture the higher yields down the road, even if it means
short-term decline in principal.”
Schultheis closed on a ringing note of optimism: “Equities are
almost certainly going to outperform bonds over the next decade;
investors need to maximize chances of capturing that return with as many
dollars that they can put at risk for short-term declines.”
Allan Roth: the Second-Grader’s Starter Portfolio 3 funds
Roth is a financial planner in Colorado Springs. Back when
Allan’s son Kevin was an 8-year-old second-grader he got a financial
gift from his grandmother, a few hints from his father and built an
incredibly simple three-fund portfolio with 60% in the Total Stock
Market Index, 30% in the International Stock Index and just 10% in the
Total Bond Market Index, a perfect allocation for a young bull with a
long time horizon and higher tolerance for risk. Their Lazy Portfolio
worked so well it’s now a perennial best-seller.
Allan Roth’s response to all the fears of a possible bear
market was again surprisingly optimistic as well as reasoned and
analytical: “Remember that top economists have correctly called the
direction of rates about a third of the time, less than a coin flip.”
And Pimco’s famous Bond King “Bill Gross bet heavily against
Treasurys 2 or 3 years ago and lost. Rates can’t decline below zero (on a
nominal basis) so the bond bull must come to an end but we don’t know
that rates are going up for the rest of the year.”
So ride the trend, think positive about a bull in your future.
Scott Burns: the Margaritaville Portfolio 3 funds
Scott Burns is a popular long-time Dallas Morning News
financial columnist and co-author of a few best-sellers. Burns started
developing and refining his Lazy Portfolios more than two decades ago.
His three-fund Margaritaville Portfolio is amazingly simple: one-third
in a domestic stock market index, one-third in an international stock
index and a third in a bond index.
Yes, different allocations than Roth’s more aggressive
portfolio, but with the same three index funds. Today, Scott’s also the
chief investment strategist for AssetBuilder.com, and a megaoptimist.
You can cheer along with Burns’s optimism in AssetBuilder’s
recent annual letter, “2012: Now That Wasn’t So Bad, Was It?” Burns and
his team expose “The High Cost of Fear: Daily headlines provided
investors with an abundance of gloom to feed their doubts last year.
Take your pick. A weak U.S. recovery. The debt crisis in Europe. The
U.S. elections. The fiscal cliff. Investors who acted on those fears
missed an opportunity to participate in strong returns across the global
financial markets. Major market indexes delivered double-digit total
returns,” while “many investors were in cash, earning nothing.”
Bottom line: Here are Burns’s three “big messages” after
analyzing all the numbers, the fear and the anticipation of an impending
crash in recent years: “One is that investors tend to buy high and low.
Another is that returns are more dependent on investor behavior than
actual fund performance. Still another is that investors who don’t act
on news or anticipations — buy-and-hold investors — typically earn
higher returns over time than those who time the market.”
Check out their Lazy Portfolios: See why sticking to a solid
buy-and-hold strategy since the 2008 meltdown beat a “dash to cash.” And
why it keeps making sense for the future. Yes, a year-end crash could
change everything, short-term say the gurus. Remember what happened
after the 2008-2009 meltdown, a bull rally that’s more than doubled the
market.
Bottom line: All four of our money managers agree, look out
further into the future, stay optimistic, see the bulls running. As Bill
Schultheis put it, since “equities are almost certainly going to
outperform bonds over the next decade, investors need to maximize
chances of capturing that return with as many dollars that they can put
at risk for short-term declines.”