[This is the final installment of a series on investing. Here was part one and here was part two.]
Instead of giving up on the Gone Fishin’ Portfolio when I found out that one of the recommended funds is closed, I decided to “leave the nest” of blindly following the advice in the book and put my newfound investment knowledge to the test. I made a few changes (let’s call them “improvements”) to the recommendations in the book.
Here’s my new portfolio. It’s essentially the same as the one in the book, but without the closed fund*, and it wraps multiple International investments into one International index fund (fewer funds to worry about means an even easier time investing, at the cost of a slightly less-customized portfolio).
| Asset Type | Vanguard Fund (Symbol) | Percentage |
|---|---|---|
| US Large-Cap (i.e. big companies) | 500 Index (VFINX) | 15% |
| US Small-Cap (i.e. small companies) | Tax-Managed Small-Cap (VTMSX) | 15% |
| International | Total International Stock Index (VGTSX) | 30% |
| Investment-Grade (i.e. low-risk) Bonds | Total Bond Market Index (VBMFX) | 20% |
| TIPS (bonds indexed to inflation) | Inflation-Protected Securities Fund (VIPSX) | 10% |
| Real Estate | REIT Index (VGSIX) | 5% |
| Precious Metals | Precious Metals and Mining Fund (VGPMX) | 5% |
What’s that last fund? It’s an investment in precious metals, like gold! But it mostly invests in the companies that extract the precious metals, which tend to follow the ups and downs of the metals themselves, but also produce profits which make them a higher-yield investment.** So we’re back where we started, with a small investment in gold. Katie was right after all!
After the one-time hassle of setting this up, all I need to do is a yearly “rebalance”. Each investment will rise or fall in value, which will make the percentages deviate from the targets above. I simply sell the ones that are too high, to buy more of the ones that are too low.*** It should take about 30 minutes a year! I can spend the rest of the time going fishin!
PS: If any of the above terms seems like mumbo-jumbo, PLEASE read the book before doing any investing. I’m no financial wiz, and I was able to grasp it. So you will too. Also, feel free to ask investing questions. Love answering them!
* Should VWEHX open back up, I’d allocate 10% to it, and drop the short-term bond allocation down to 10%.
** Go back and read the quote from investment guru Warren Buffett if you don’t understand why this is the case.
*** AKA “sell high, buy low”. Alternatively, I can save up cash over the year and add value to the underperforming funds until everything balances out. Still “buying low” but removing the potential tax implications of selling assets.
Foundry in the Forest 
If you don’t know about riskcog.com, it’s a great tool for backtesting various investment strategies. Here’s how yours does: http://www.riskcog.com/portfolio-theme2.jsp#54924968jk49e49b1fa1f8
Personally, I think you could achieve similar returns with a lot less risk and a lot more simplicity. Consider the following:
* 25% small-cap value stocks (VBR)
* 25% long-term treasury bonds (EDV, TLT, VGLT, or preferably directly-owned 30-year treasuries)
* 25% short-term treasury bonds (SHY, VGSH, VFISX, or preferably directly-owned short-term T-bonds)
* 25% gold (GLD, IAU, or preferably physical bullion)
(http://www.riskcog.com/portfolio-theme2.jsp#574574c74e748).
That allocation has a 10.71% average return compared to 10.82% for yours, but a MUCH lower level of volatility–in 1994, its worst year, it was down 3.07% compared to yours which would have been down 24.8% in 2008. Gulp. That’s a lot to lose in a single year.
This four-asset portfolio is a minor variation on Harry Browne’s Permanent Portfolio which I personally use and have been extremely satisfied with. It will protect and grow your wealth better and with more simplicity! You can learn more at http://www.gyroscopicinvesting.com/forum
Wow, great tool! Thanks for the portfolio recommendation, looks like I need to do more research.