Investing made simple

This past weekend I rebalanced my 401K portofolio which I have neglected for about a year. Shame on me. And then I started to re-think about our non-retirement portofolio. I've been tracking an investment blog by another employee at my company for some time. His rationale for picking / exiting specific stocks are very sensible and easy to understand. It is important to note that he is not a "buy and hold" type. Impressed with his weekly results I even considered mimicing his short term strategies. But then I realized that he did not disclose the net effect of taxes and the brokerage fees on his short term gains. A quick calculation would show that if you factor in the taxes and fees it would pretty much erode the gains and bring his results much more in line with the Market averages. If you read his blog, you also wonder how much time this guy put in for his "research."

Investing is a fun conversation piece for me. It's funny that whenever I get into the topic with friends, my fixation of index funds becomes evident. But it's for good reasons...

• First, my little anecdote above.
• Second, I read in an article that if you keep up on the news, the press, magazines, internet, etc. you'd be exposed to at least 42,000 investing "tips" every year by "gurus / investment experts." I have yet to learn of many (or even a few) actively managed -portofolios- that beat a well diversified portofolio of index funds in the long term (5 - 10 years with exposure to bull/bear cycle). Anything less than 5 years, I'd question if you really are investing.
• Third, year 2002 still burns me to this day. Being young, naive, greedy, I paid the price.
  

For the past few years I have always looked for Paul B Farrell's annual index fund results. From this year's article, I copied & pasted a variety of diversified index portofolios (aka "lazyman's portofolios") utilizing low cost Vanguard funds.


"The Aronson portfolio"
Vanguard Total Stock Market Index (VTSMX - 5%)
Vanguard 500 Index (VFINX - 15%)
Vanguard Extended Market Index (VEXMX - 10%)
Vanguard Small Cap Growth Index (VISGX - 5%)
Vanguard Small Cap Value Index (VISVX - 5%)
Vanguard Emerging Markets Stock Index (VEIEX - 20%)
Vanguard Pacific Stock Index (VPACX - 15%)
Vanguard European Stock Index (VEURX - 5%)
Vanguard Inflation-protected Securities (VIPSX - 10%)
Vanguard High-yield Corporate (VWEHX - 5%)
Vanguard Long-term U.S. Treasury (VUSTX - 5%)
Total portfolio 100%


Scott Burns' "The Margaritaville portfolio"
Vanguard Total Stock Market Index (VTSMX - 33.33%)
Vanguard Total International Stock Index (VGTSX - 33.33%)
Vanguard Inflation-protected Securities (VIPSX - 33.33%)
Total portfolio 100%


Dr William Bernstein's "The No-brainer portfolio"
Vanguard Short-term Investment Grade Index (VFST - 40%)
Vanguard Total Stock Market Index (VTSMX - 15%)
Vanguard Small Cap Value Index (VISVX - 10%)
Vanguard Value Index (VIVAX - 10% )
Vanguard European Stock Index (VEURX - 5% )
Vanguard Pacific Stock Index (VPACX - 5%)
Vanguard REIT Index (VGSIX - 5%)
Vanguard Small Cap Index (NAESX 5%)
Vanguard Emerging Markets Stock Index (VEIEX - 5%)
Total portfolio 100%


Bill Schultheis' "The Coffeehouse portfolio"
Vanguard Total Bond Market Index (VBMFX - 40%)
Vanguard 500 Index (VFINX - 10%)
Vanguard Value Index (VIVAX - 10%)
Vanguard Small Cap Index (NAESX - 10%)
Vanguard Small Cap Value Index (VISVX - 10%)
Vanguard Total International Stock Index (VGTSX - 10%)
Vanguard REIT Index (VGSIX - 10%)
Total portfolio 100%


"The Yale portfolio"
Vanguard Total Stock Market Index (VTSMX - 30%
Vanguard Total International Stock Index (VGTSX - 20%)
Vanguard REIT Index (VGSIX - 20%)
Vanguard Short-term Treasury Index (VFISX - 15%)
Vanguard Inflation-protected Securities (VIPSX - 15%)
Total portfolio 100%

It's interesting to note the similarities in fund types. We've been trying to slowly mimic the "The Aronson portfolio" which achieved ~ 11.5%. This easily beat the S&P500 ~4.7% for 2005. I personally prefer the "The Aronson portfolio" for it's granularity but each of the example portofolios above are easily winners in the long term.