. Not everyone is having a bad year.
While stocks, bonds, and other investments have fallen since January 1, some simple, low-cost, all weather portfolios are doing a better job of protecting their owners’ retirement savings.
Best of all, anyone can copy them with a few low-cost mutual funds or exchange-traded funds. Anybody.
You don’t have to be able to predict the future of the market.
. You don’t have to spend a lot of money on high-fee hedge funds, which usually don’t work anyway.
. And you don’t have to sit in cash and miss out on long-term profits.
Money manager Doug Ramsey’s simple “All Asset No Authority” portfolio has lost half as much as a standard “balanced” portfolio since Jan. 1, and a third as much as the S&P 500. Meb Faber’s simpler alternative has performed even better.
. These portfolios can be almost break-even when combined with an easy market timing system that anyone can do from home.
This, in a year when almost everything has plummeted, including the S&P 500
The Nasdaq Composite
(I know, shocking, right?
*This is more than hindsight.
. Ramsey is the chief investment strategist at Midwestern money manager firm Leuthold Group. He has been watching what he calls the “All Asset No Authority Portfolio” for many years. This is a portfolio that you would have if your pension fund manager told you to hold all major asset classes but make no decisions. So it consists of equal amounts in 7 assets: U.S. large-company stocks, U.S. small-company stocks, U.S. real-estate investment trusts, 10 Year U.S. Treasury notes, international stocks (in developed markets like Europe and Japan), commodities and gold.
Any of us could copy this portfolio with 7 ETFs: For instance the SPDR S&P 500 ETF trust
the iShares Russell 2000 ETF
Vanguard Real Estate
iShares 7-10 Year Treasury Bond
Vanguard FTSE Developed Markets ETF
Invesco DB Commodity Indice ETF
SPDR Gold Trust
These illustrations are not intended to be used as recommendations for specific funds. These examples show that the portfolio can be accessed by anyone.
Faber’s portfolio is similar, but excludes gold and U.S. small-company stocks, leaving 20% each in U.S. and international large-company stocks, U.S. real estate trusts, U.S. Treasury bonds, and commodities.
. The magic ingredient in this year’s S&P GSCI is, of course the presence of commodities. The S&P Global Standard for Consumer Information
has skyrocketed 33% since Jan. 1, while everything else has tanked.
. The key point is not that commodities make great long-term investments. (They aren’t. According to analysts, commodities have been either a poor investment or a bad one over the long-term. However, oil and gold seem to have been the best investments. )
. The key point is that commodities tend to do well when stocks and bonds do poorly. Such as during the 1970s. Or the 2000s. Or now.
This means that there is less volatility and less stress. This means that any person who holds commodities in their portfolio will be better positioned to profit from a stock or bond crash.
Just out of curiosity I went back and looked at how Ramsey’s All Asset No Authority portfolio would have done, say, over the past 20 years. Result? It was a smashing success. If you’d invested equal amounts in those 7 assets at the end of 2002 and just rebalanced at the end of every year, to keep the portfolio equally spread across each one, you’d have posted stellar total returns of 420%. That’s a full 100 percentage points ahead of the performance of, say, the Vanguard Balanced Index Fund
. A simple portfolio check once per month would have reduced the risk even more.
It is 15 years since Meb Faber, co-founder and chief investment officer at money management firm Cambria Investment Management, demonstrated the power of a simple market-timing system that anyone could follow.
In a nutshell, you only need to check your portfolio once per month. This could be on the last day of each month. When you do, look at each investment, and compare its current price with its average price over the previous 10 months, or about 200 trading days. (This number, known as the 200-day moving average, can be found very easily here at MarketWatch, by the way, using our charting feature).
If the investment is below the 200-day average sell it and move the money into a money-market fund or into Treasury bills. That’s it.
Keep checking your portfolio every month. If the investment falls below the moving average, you can buy it back. It’s as simple as that.
Own these assets only when they closed above their 200-day average on the last day of the previous month.
.Faber calculated that this simple system would have allowed him to avoid any really bad bear markets and reduce volatility without affecting his long-term returns. Crash don’t usually happen out of the blue. Instead, they are preceded by a long slide that causes momentum to lose its way.
And it doesn’t just work for the S&P 500, he found. It can be used for all asset classes: commodities, gold, real estate trusts and Treasury bonds.
It got you out of the S&P 500 this year at the end of February, long before the April and May meltdowns. It helped you get out of Treasury bonds at year’s end.
Doug Ramsey has calculated what this market timing system would have done to these 5 or 7 asset portfolios for nearly 50 years. Bottom line: Since 1972 this would have generated 92% of the average annual return of the S&P 500, with less than ha