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The 60/40 Portfolio for Retirees–Good, Bad or Ugly?

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The 60/40 portfolio has powered retirements for decades. With 60% stocks and 40% bonds, this balanced fund offers equity-fueled growth and fixed income stability.

Today, however, many are calling into question the sustainability of the 60/40 portfolio. Some even argue that it’s dead and that retirees need take on more risk if they want to avoid outliving their retirement savings.

In this article we’ll take a deep dive into the 60/40 portfolio and whether it’s still a viable approach to investing for retirees.

Table of contents

A Brief History of the 60/40 Portfolio

Dating back to 1926, the 60/40 portfolio has enjoyed an annualized return of 9.1% (Source: Vanguard). Its best year, 1993, saw returns of 36.7%, while its worst year, 1931, experienced a loss of 26.6%. Over those 95 years, 22 saw the portfolio decline in value. The returns combined with relative stability have made the balanced portfolio ideal for retirees.

More recent returns show similar results. From 1972 to 2021 a 60/40 portfolio consisting of an S&P 500 index for stocks and intermediate term Treasuries for bonds has returned 9.61% with a standard deviation of 9.51% (via Portfolio Visualizer). The combination of solid returns with less volatility has been ideal for retirees.

In his 1994 paper, certified financial planner Bill Bengen gave us what is now known as the 4% Rule. In brief, the 4% Rule states the following:

  • A retiree can spend 4% of their investments in the first year of retirement;
  • In subsequent years, the retiree can adjust the prior year’s distribution by the rate of inflation; and
  • Following this approach, the retiree should not outlive their money.

Why do we care about the 4% rule? We care because the 60/40 portfolio fits in the sweet spot of the 4% Rule. Bengen found that retirees should hold somewhere between 50% and 75% in equities. In a later book, he identified 60/40 as the ideal portfolio in retirement to avoid outliving a nest egg. Other papers evaluating safe withdrawal rates have reached similar conclusions (as we’ll see in a minute). Some have even evaluated its performance back to 1871!

Notwithstanding the 60/40 portfolio’s stellar history dating back to the post-Civil War era, many are now calling into question its future.

Arguments that 60/40 Portfolio is Dead

There have been several arguments put forth that the 60/40 portfolio is no longer ideal for retirees. All of the arguments stem from the unprecedented financial times we are currently in.

Argument #1: Bond yields are at all-time lows

The yield on the 10-year Treasury sunk to its lowest in 2020 and remains at historic lows. When viewed on a yearly basis, the yield sunk below 2% back in 1941 (1.95% to be precise). Apart from that one year, it remained above 2.00% until 2012 (Source: Shiller). It’s currently at about 1.30%.

During much of the 20th century, the yield was significantly higher. It reached over 14% in 1982. At today’s low yields, many question how a 60/40 portfolio could survive a 30-year retirement.

From Money (4/21/21):

“I think the 60/40 portfolio is antiquated,” says Keith Singer of Singer Wealth Advisors in Boca Raton, Florida. “When bonds used to pay 6-8% and interest rates were falling, the 60/40 model worked great. But as they say, past performance is no guarantee of future results, and that is especially true with the 60/40 portfolio.” (Source: Money).

Argument #2: The 40-Year Bull Market in Bonds Is Over

The second argument relates to the fall of yields over the past 40 years. They hit a high in 1982, and then steadily dropped to their historic lows today. As bond yields fall, the value of existing bonds go up. As such, retirees have benefited from falling interest rates. Unless rates go negative, however, most believe the bull market in bonds is over

If the bond bull market is over, and rates begin to rise, the value of existing bonds will fall. Rising rates can also lead to lower asset values on everything from stocks to real estate, which brings us to the third argument.

Argument #3: Equity Valuations are High (and must fall significantly)

Many point to the richly valued S&P 500. The Shiller PE, which measures price-to-earnings over 10-year periods, is at one of its highest levels.

Shiller PE
Source: https://www.multpl.com/shiller-pe

The argument here is simple. Lofty valuations suggest that stock returns over the next decade will be much lower than historical averages.

At the same time, many argue that the 60/40 portfolio should shift to a greater allocation in stocks. The reason is that while stocks are expensive, the additional long-term returns are needed to offset the paltry returns expected from bonds.

A recent report from Goldman Sachs framed the issue as follows:

The beneficial role of bonds in balanced portfolios has more recently been in doubt given that bond yields close to the zero lower bound offer a diminished returns buffer during “risk-off” periods. These doubts have only increased alongside concerns that an accelerating economic recovery from the pandemic-induced recession, amplified by historically large US fiscal stimulus, could lead to a strong rise in inflation and, in turn, the start of a prolonged bond bear market. During most historical bond bear markets, equities have outperformed bonds and have delivered positive real returns. This has been especially the case over the last 20 years, during which bond bear markets tended to be short and shallow.

Source: https://www.goldmansachs.com/insights/pages/gs-research/reflation-risk/report.pdf

Argument #4: Negative Correlation May be Over

Finally, many believe the negative correlation that stocks and bonds have enjoyed over the past two decades may be over. In a report entitled The End of 60/40, Bank of America analysts warn that bonds may no longer provide the diversification investors have come to expect.

60/40 portfolio diversification

The authors explain,

The core premise of every 60/40 portfolio is that bonds can hedge against risks to growth and equities can hedge against inflation; their returns are negatively correlated,” Woodard and Harris added. “But this assumption was only true over the past two decades and was mostly false over the prior 65 years. The big risk is that the correlation could flip, and now the longest period of negative correlation in history is coming to an end as policy makers jolt markets with attempts to boost growth.

In short, there’s no place to hide.

Arguments that 60/40 Portfolio is Still Solid

All of the above arguments identify real and significant challenges to the capital markets. Interest rates are at historic yields. The 40-year bull market in bonds does appear to be over. And stock valuations are extremely high.

Nevertheless, I believe the 60/40 portfolio is still ideal for retirees. It’s not the only reasonably allocation in retirement, but it will continue to support a retiree for 30 years or more who relies on the 4% Rule. Here’s why I believe this.

Argument #1: Retirees are long-term investors

Those who retire at a traditional age are long-term investors. For a 65-year-old couple, there is a 1-in-4 chance of at least one spouse living past 97 and a 1-in-10 chance of at least one spouse living to 100 (Source: BofA). Retirees could be in the market 35 years or longer. To put that number in perspective, 35 years ago Ronald Reagan was President and Boy George and Mr. T were filing an episode of The A-Team.

The point is that while both equities and bonds may underperform over the next several years, or decade, retirees must consider a much longer time horizon.

Of course, the first ten to 15 years of retirement are critical. Due to the sequence of returns and inflation risk, a devastating market in the first decade of retirement could spell disaster. And that brings us to the second point.

Argument #2: The 60/40 Portfolio has Worked Since 1871

No, that’s not a typo. Researchers have tested the 60/40 portfolio against the 4% Rule with markets dating back to just after the Civil War. It’s never failed.

Michael Kitces, CFP, published a paper showing the maximum initial withdrawal rate one could have taken in the first year of retirement without running out of money over a 30-year retirement. His research tested retirements beginning in 1871.

Initial safe withdrawal rate by year
Source: https://www.genesiswealthmanagement.com/files/documents/SafeWithdrawalRate%20%28Kitces%29.pdf

The lowest initial withdrawal rate was 4.4% in 1966. Some years could have seen an initial withdrawal rate of over 10%. The point is that a 60/40 portfolio has sustained a 30-year retirement through the aftermath of the Civil War, the Panic of 1893, WWI, the Great Depression, WWII, the stagflation of the 1970s, the tech bubble, 9/11, the Great Recession, and the ongoing Covid pandemic.

Argument #3: The 60/40 portfolio offers growth and stability

When compared to a portfolio heavily weighted in stocks, the 60/40 portfolio stands out for its excellent growth and muted volatility. That’s not to say it’s not volatile, but its up and downs are significantly less than a 100% stock portfolio. And that’s precisely what many retirees need.

Since 1972, a 60/40 portfolio has returned an annual compound rate of 9.61%. These returns are lower than a 100% stock portfolio, which returned 10.75% over the same period. What’s notable, however, is the volatility. The standard deviation of a 60/40 portfolio was just 9.51%, while the stock portfolio came in at 15.25%.

To put these differences in perspective, the worst year for a 100% stock portfolio during this period was -37.45%, compared to just -16.88% of the 60/40 portfolio. At the same time, the worst maximum drawdown for the stock portfolio was nearly -51%, compared to -28% for the balanced portfolio.

The increased volatility that comes with 100% stocks brings us to the next argument.

Argument #4: Retirees can stick with a 60/40 portfolio

Studies have shown that investors are not adept at timing the market. Called the investor gap, studies have documented the gap between an investment’s return and an investor’s return. Because investors tend to buy high when stocks are rising and to sell low in a panic when investments fall, they consistently underperform the very investments where they place their money.

One Morningstar study found that investors lost on average 45 basis points due to market timing. There was, however, one bright spot. The study found that investors in less volatile investments performed better. From the study,

When we broke down funds within asset classes based on their standard deviation, we found that funds in the least-volatile quintiles consistently had higher investor returns than those in more-volatile quintiles. This suggests that “boring” funds work well because they aren’t as likely to inspire fear or greed.

A portfolio with more stocks may perform better over the long-term. Investors in retirement, however, need to ask whether they can handle the ride.

Argument #5: The 60/40 portfolio survived rising rates and inflation

No two time periods are identical. Today we face challenges the U.S. and world have never faced. We can, however, look back at similar times to gain an understanding of how the 60/40 portfolio might perform when interest rates and inflation rise. Here I’m thinking of the period from 1941 to 1982.

The yield on the 10-year Treasury stood at 1.95% at the start of 1941. In 1982 it began the year north of 14%. Over the decade leading up to 1982, the U.S. experienced double-digit inflation, with low growth, giving way to the term stagflation.

During this time how did the 60/40 portfolio perform for retirees? Just fine. To be sure, this period is why we have the 4% rule. It represents the low water mark on a safe initial withdrawal rate. But that rate still stands at 4 to 4.5%.

The 60/40 portfolio also performed well more recently when rates began to rise earlier this year. The first quarter of 2021 was the worst for U.S. investment-grade bonds in the last two decades. The 60/40 portfolio did just fine:

“The first quarter of 2021 showed that even the worst quarter for U.S. investment-grade bonds in the last 20 years wasn’t enough to derail the classic 60/40 portfolio”, says Jason Kephart.

So what’s the take for investors. As long as the correlation between traditional asset classes doesn’t shift dramatically and the portfolio continues to rise over time, then holding a 60/40 portfolio still makes sense.

That doesn’t mean investors shouldn’t consider some alternative mixes but perhaps hold those on the margins and keep your core in stocks and bonds. Although, instead of holding broad indexes, they might want to consider diversifying by adding buckets of individual stocks and bonds.

At the end of the day, the most important risk any investor should always think about is the permanent loss of capital and the loss of purchasing power. The 60/40 portfolio still offers the best defence. And even it if did seem to veer off course at one point, it could have been by design.

Source: https://www.morningstar.ca/ca/news/213154/does-the-60%2F40-portfolio-still-make-sense.aspx

Building a 60/40 Portfolio

So far we haven’t discussed the stock and bond investments that make up a 60/40 portfolio. Most of the studies on a balanced portfolio use an S&P 500 index for stocks and intermediate term U.S. bond fund for fixed income. Given current economic challenges faced by retirees, should we further diversify our asset classes?

Warren Buffett would likely say no. The Warren Buffett portfolio he recommends consists of just two asset classes: S&P 500 index and short term U.S. government bonds. He’s bullish on the future of the United States.

At the same time, the U.S. faces significant hurdles. Its population is aging, reducing the workforce while increasing the cost of social programs for senior citizens. The country’s debt to GDP ratio skyrocketed as a result of the pandemic and now stands at more than 125% (Source: The Fed). And our politicians in Washington seem willing to continue borrowing at unprecedented levels indefinitely. Eventually we’ll have to pay for all of this spending.

As a result, some financial advisors recommend moving beyond U.S. stocks and Treasuries. Bob Rice, the Chief Investment Strategist for Tangent Capital made such an argument when he spoke at the fifth annual Investment News conference for alternative investments.

“You cannot invest in one future anymore; you have to invest in multiple futures,” Rice said. “The things that drove 60/40 portfolios to work are broken. The old 60/40 portfolio did the things that clients wanted, but those two asset classes alone cannot provide that anymore. It was convenient, it was easy, and it’s over. We don’t trust stocks and bonds completely to do the job of providing income, growth, inflation protection, and downside protection anymore.”

Source: https://www.investopedia.com/articles/financial-advisors/011916/why-6040-portfolio-no-longer-good-enough.asp

While I don’t share his pessimistic views of the 60/40 portfolio, diversifying to international equities seems reasonable. This could include both developed countries and emerging markets. Other diversification opportunities could include real estate (REITs) and commodities. For bonds, some argue that retirees should take on more credit risk through high-yield bonds and emerging market debt.

Having said that, there’s no guarantee that diversifying the portfolio will lead to better results. A well diversified portfolio has significantly underperformed a basic 60/40 portfolio over the last 15 years (commodities data wasn’t available before 2007 in Portfolio Visualizer).

diversified 60/40 portfolio

At the same time, if we remove commodities and add the 5% allocation back into the S&P 500, we extended the data to 1999 AND see that the greater diversification paid off.

60/40 diversification

Of course, this time period saw the tech bubble burst, 9/11 and the Great Recession, all of which had significant affects on the S&P 500. And that really is the point. While diversification is generally a sound approach to investing, it’s not a guarantee of higher returns.

Final Thoughts

The 60/40 portfolio is certainly not the only reasonable approach to investing in retirement. Yet for many retirees, it has stood the test of time. It offers both growth and stability, which retirees need for their money to last 30 years or more.

Nobody knows the future. Is it possible that we could see unprecedented economic conditions that could wreck havoc on retirees? Of course we could. Although if that happens, one wonders if any asset allocation would save us.

How Investment Fees Affect Wealth

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It costs money to invest. We pay all types of fees, some obvious, some not so obvious. In this article I’m going to walk through the most common investing fees you are likely to encounter. Then we’ll examine just how destructive a seemingly small amount of fees can be to your wealth and retirement.

Table of contents

Do Fees Really Matter?

Before looking at specific types of investment fees, let’s first ask whether fees really matter. To answer that question, the first thing we must recognize is that seemingly small fees, over time, can seriously reduce the value of an investment portfolio.

The Securities and Exchange Commission (SEC) published a paper on this very topic in 2014. It noted that “fees may seem small, but over time they can have a major impact on your investment portfolio.”

Invest fees affect on a portfolio over 20 years

Some have argued that fees don’t matter. Instead, what matters are returns after factoring in the fees. In other words, paying high fees is not only fine, but ideal, if the investment returns enough to justify the fees. Conceptually this makes sense. In practice, however, it falls apart.

Study after study after study shows that expensive investments underperform inexpensive investments. For example, Vanguard looked at the annualized returns for a 10 year period ending December 31, 2014 for two groups of mutual funds: 25% of the funds with the lowest expense ratio and 25% with the highest. The low-cost funds won.

Funds with lower costs outperform more expense ones

The primary way we keep fees down, as we’ll discuss more below, is to use low-cost index ETFs and mutual funds. It’s an approach Warren Buffett, the CEO of Berkshire Hathaway and arguable the best investor alive today, supports:

Nevertheless, both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions. The resulting frictional costs can be huge and, for investors in aggregate, devoid of benefit. So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm.

My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. . . . My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.

Types of Investment Fees

There are countless fees investors may encounter. I’m going to list them in the order you are more likely to encounter them. Some fees are virtually unavoidable, but can be kept to a minimum. Other fees should be avoided at virtually all costs. Frankly, the only fee that is truly unavoidable is the first one on our list–expense ratio.

Expense Ratio

Mutual funds and ETFs charge investors a fee. The fee covers the cost of the fund, including payroll, as well as profit for the fund company. Expense ratios are expressed as a percentage. For example, a fund that charges a one percent (1%) expense ratio would cost an investor 1% of the amount invested in the fund (e.g., $100,000 investment would cost $1,000 per year with a 1% expense ratio).

The expense ratio is practically unavoidable. Fidelity does offer a few funds with no expense ratio, but that’s the exception. Even low-cost fund provider Vanguard charges expense ratios on its ETFs and mutual funds.

Transaction Costs

There can be costs to buy and sell stocks, mutual funds and ETFs. By and large these costs are easy to avoid. Most mutual fund companies and brokers have gone to $0 trades if made online. There is, however, one important exception.

Many brokers charge a commission when you purchase a mutual fund (not an ETF). For example, I have an account at Merrill Edge, and the broker charges $19.95 when I purchase certain mutual funds. They do have a list of fee-free funds, but many of the funds I use from Vanguard would require payment of the commission.

For this reason, it’s important to understand the types of investments you want to make before choosing a broker. If you know, for example, that you’ll invest entirely in Vanguard funds, it makes sense to open an account at Vanguard or a broker that offers at a minimum free Vanguard ETFs. M1 Finance is a good example and a broker I also use.

Investment Advisor Fees

Advisor fees come in two forms: (1) a percentage of assets under management (AUM), or (2) a fixed or hourly fee. The vast majority of advisors charge a percentage of AUM, with 1% the industry standard (although fees do vary based on account size and services provided).

Some lower cost AUM advisors have entered the market over the past 10 years or so. Vanguard offers advisory services for just 30 basis points. A number of so called robo-advisors offer their services for about 25 basis points (e.g., Betterment and Wealthfront).

A growing list of advisors have turned to hourly or fixed fees. These arrangements almost always favor the client, as the total cost is generally far less than the AUM model. One such advisor is Mark Zoril of PlanVision.

As you’ll see in a minute, Advisor fees based on a percentage of AUM destroy more wealth than any other fee (although high expense ratios are a close second).

Load Fees

Some mutual funds charge what are called load fees. Front-end load fees are paid when you invest in a mutual fund with this type of fee; Back-end load fees when you sell.

Front-end load fees typically cost 5.75%. For every $100 invested, fees take $5.75, leaving $94.25 in your account. There’s absolutely no reason to invest in mutual funds that charge load fees. Ever!

Where to Find the Expense Ratio of a Mutual Fund

There are several easy ways to find the expense ratio of any mutual fund or ETF. For starts, you can Google the ticker symbol of the fund. VSTAX, for example, is Vanguards total stock market fund. Searching “VSTAX” returns the following result, including the fund’s expense ratio:

How to find expense ratio using Google
(The Expense Ratio of 0.04% is in the bottom right of the image)

You can also see if a fund charges a load fee AGTHX, an American Funds growth fund:

how to find load fees
Note the “Front load” of 5.75%

Another free tool that tracks both the expense ratio as well as any load fees is Morningstar. You can also check the prospectus of the funed.

As for investment advisor fees, you should ask. It’s as simple as that. It should also be reflected on your statements. You can also find fee disclosures in the advisor’s Form ADV. But asking is much easier.

How to Determine the Expense Ratio of Your Investment Portfolio

While it’s important to know the expense ratio of each investment, what really matters is the overall expense ratio of your portfolio. You could calculate this by hand. Just take the weighted average of your expense ratios across all of your investments. If that sounds as inviting as a root canal, there is an easier way. Use Personal Capital.

Personal Capital is a free financial dashboard. Link all your financial accounts (checking, savings, credit cards, retirement accounts, HSAs, loans, taxable investments) and Personal Capital provides a wealth of tools. You can do everything from budgeting to loan payoff to retirement planning. And for our purposes, it will automatically calculate the expense ratio of your investment portfolio.

Here’s the results from a demo portfolio I entered into Personal Capital:

Note the 0.10% annual fee to the right. That’s the expense ratio of a portfolio that included dozens of investments. You can read my review of Personal Capital or go directly to its free signup page (truly free-no credit card needed–ever).

How Fees Affect Your Wealth

Let’s imagine that we make the maximum contribution to an IRA ($6,000) during our working years from age 20 to 65. If we earn an average of a 9% return on our investments, we’ll retire with about $3.1 million (gotta love compounding).

Now let’s assume we pay an investment advisor a “small” 1% fee. Our retirement fund drops to $2.3 million. Add in a 1% expense ratio on the mutual funds, and our nest egg falls further to $1.7 million. Yeah, fees matter.

How to Avoid Most Investment Fees

There are several important steps to take to keep you fees low.

Low cost index funds: First, stick to low cost index funds (ETFs or mutual funds). They outperform the vast majority of actively managed funds over time. There are plenty of sound “lazy portfolios” that make for great long-term investment strategies. Here are a few of them:

Avoid Expensive Advisors: There’s simply no good reason to pay more than about 0.30% of AUM, at the most. Vanguard offers its services at this price. Why pay more? And there are plenty of advisors who charged by the hour, which is even better.

Consider Automated Investment Services: For those that want a little help, you can consider a robo advisor. They come in all shapes and sizes. I like Betterment and Wealthfront for those who want a set-it-and-forget-it arrangement. Cost is about 25 basis points. For those who want more control, M1 Finance is the way to go. It lets you create your own mutual fund (they call them Pies). It’s easy to use, easy to rebalance, and free.

The Paul Merriman Ultimate Buy and Hold Portfolio

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I first met Paul Merriman back in 2017. He was kind enough to come on my podcast to talk about what he calls the Ultimate Buy and Hold Portfolio. We’ve kept in touch over the years, and in fact we were just talking about a month ago. In this article we’ll dig into the details of his investing strategy.

Table of contents

Who is Paul Merriman?

Paul Merriman

Paul founded an investment advisory firm back in 1983. He retired in 2012, and in 2013 he started the Merriman Financial Education Foundation where he helps educate investors. He’s also published several books, including his most recent one, We’re Talking Millions!: 12 Simple Ways To Supercharge Your Retirement.

Over the years he’s developed what he calls the Ultimate Buy and Hold Portfolio. As you’ll see, it consists of 10 stock asset classes, each implemented with a low cost index mutual fund or ETF.

The Ultimate Buy and Hold Portfolio

Stocks

There are several versions of Paul’s Ultimate Buy and Hold Portfolio. We’ll spend most of our time looking at the version that has become famous over the years. It consists of the following 10 stock asset classes:

  • S&P 500
  • U.S. Large Cap Value (LCV)
  • U.S. Small Cap Blend (SCB)
  • U.S. Small Cap Value (SCV)
  • Real Estate Investment Trust (REIT)
  • International Large Cap Blend (LCB)
  • International LCV
  • International SCB
  • International SCV
  • Emerging Markets

Paul allocates the equity portion of a portfolio equally across these asset classes. For example, a portfolio of 100% stocks would see 10% allocated to each asset class. An 80/20 portfolio would have 8% allocated to each class, with 20% going to one or more bond funds (we’ll look at examples in a moment, but you can check out Paul’s portfolio implemented as a 80/20 portfolio on M1 Finance.)

Bonds

Merriman recommends three types of bonds for the fixed income portion of his strategy:

  • Intermediate term Treasury bonds (50% of total bonds)
  • Short term Treasury bonds and bills (30%)
  • Short term TIPS (20%)

I agree with much of what he suggests. He’s avoided high-risk bonds such as those issued from emerging market governments or troubled corporations. He’s also kept to a shorter yield curve and added some exposure to inflation protected securities.

If there’s any aspect I might adjust it’s to add more TIPS. If you believe inflation will be higher in the future than the market is predicting, TIPS are a way to place that bet. In contrast, if you think inflation will be lower than expected, Treasury bonds are the answer.

For those like me who have absolutely no idea, you split your bond portfolio equally between the two. That’s exactly what the David Swensen Portfolio does. The only caveat today is that TIPS start with a negative yield, and if you’re like me, that’s a hard pill to swallow. Nevertheless, that’s how I’ve implemented the Ultimate Buy and Hold strategy in M1 Finance.

How the Ultimate Buy and Hold Portfolio is Different

There are several aspects to note about Merriman’s investing strategy:

International Exposure: The portfolio allocates a full 50% of equities to international funds. This is unique among the portfolio’s I’ve evaluated. Most are less than 50%. The Warren Buffett Portfolio doesn’t allocate anything directly to international stocks. And Vanguard’s founder, Jack Bogle, saw no need to own international stocks.

I personally think international exposure is important. My portfolio allocates about 30% to global funds.

Small Cap Exposure: The Ultimate Buy & Hold portfolio allocates 20% to small cap stocks. It does so because history tells us that small cap companies out perform large cap companies over the long term. Over the past 50 years, small cap has outperformed large cap by more than 1%. A $10,000 investment beginning in 1972 would grow to more than $2.7 million if invested in small companies, compared to $1.5 million in large companies.

Source: Portfolio Visualizer

Value Exposure: Finally, Merriman’s strategy favors value investments over growth. Again, history tells the story. Although growth stocks have outperformed value recently, over the last 100 years, value has performed better in both large and small companies.

Historical Performance of the Ultimate Buy and Hold Strategy

The big question is how Merriman’s Ultimate Buy and Hold portfolio has performed. As you can see in the chart below (click the image to enlarge it), the portfolio has trounced the S&P 500 over the last 50 years.

The portfolio has returned 12.4% annually compared to 10.7% for the S&P 500. Note, however, that it comes with more risk. The standard deviation of Merriman’s portfolio, when rebalanced annually, weighs in at 18.5%, compared to 16.9% for the S&P 500. In other words, if you can handle the volatility, Merriman’s portfolio may be a sound option. Note too that by rebalancing monthly, you decrease both the returns and volatility.

Before we leave the performance of this investing strategy, it’s worth looking at how well it’s done over the last decade. As you can see, the portfolio has lagged the S&P 500 since 2010:

Source: Portfolio Visualizer

Why? Over the last decade large companies have outperformed small companies, growth companies have outperformed value companies, and U.S. companies have outperformed international companies. In other words, in just about every way that the Buy and Hold portfolio overweights has seen underperformance.

Much of this is the result of a low inflation, and easy money policy of the Fed and federal government. Massive borrowing and spending has sent asset prices soaring, which favors larger growth companies.

I don’t believe this undermines Merriman’s portfolio. The U.S. can’t borrow to infinity. But it does underscore that any investment strategy can lag the market for extended periods of time.

Building the UB&H Strategy

There are a number of ways to construct the Ultimate Buy & Hold Strategy. I’ve built one approach in M1 Finance using low cost index ETFs:

Keep a few things in mind. First, the above portfolio is 80% stocks and 20% bonds. One can easily change this to whatever stock/bond allocation is best to meet their investment goals.

Second, some of the chosen ETFs cover more than one asset class. For example, Vanguard’s small-cap ETF (ticker: VB) includes mid-cap companies. I think this is a perfectly reasonable approach to the UB&H strategy, but one could easily substitute a micro-cap ETF (e.g, iShares Micro-Cap ETF IWC).

Here’s what the asset allocation looks like in Personal Capital:

Finally, M1 Finance is ideal for this portfolio as it makes rebalancing easy. With M1, you can rebalance a portfolio with the click of a button.

The Simplified Ultimate Buy and Hold Portfolio Alternative

Paul Merriman and his team have released simplified versions of the UB&H portfolio. These are ideal for those who don’t want to juggle 10 stock asset classes! He has both a 4-fund and a 2-fund solution.

Source: https://paulmerriman.com/4-fund-combo-latest-recommendations/

4-Fund Ultimate Buy and Hold Portfolio

The Merriman 4-Fund Portfolio (see it here at M1 Finance) consists of the following four asset classes:

  • LCB (S&P 500)
  • LCV
  • SCB
  • SCV

This portfolio’s performance is similar to the 10-fund portfolio. It has averaged 13.8% over rolling 15-year periods since 1928. The S&P 500 has averaged just 11.0%.

2-Fund Ultimate Buy and Hold Portfolio

The 2-fund solution has performed even better. Its average performance over rolling 15-year periods is an amazing 14.5%. Here, however, some cautionary words.

The 2-fund portfolio bets everything on value investing. The two asset classes are SCV and LCV. In the short to medium term, this portfolio could significantly underperform the market, such as what the 3-fund portfolio seeks to replicate.

Final Thoughts

The 10-fund Ultimate Buy & Hold portfolio is an excellent way to potentially outperform the market without sacrificing diversification. It does, however, represent a more volatile approach to investing. Therefore, it’s not for everyone. At the same time, one can modify the portfolio to better suit individual approaches to investing.

My Research for this Article

Ray Dalio All Weather Portfolio

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The Ray Dalio All Weather Portfolio is designed to perform well in any economic cycle. Using risk parity to match asset classes to economic risk, the portfolio promises to perform well in any market with less volatility than traditional asset allocation models. In this article, we’ll examine the portfolio to see if it should be part of our investment strategy.

Ray Dalio All Weather Portfolio

Resources and Tools Mentioned in this Article:

Table of contents

Who is Ray Dalio?

Ray Dalio is a billionaire investor and hedge fund manager. Dalio founded Bridgewater Associates in 1975 and built it into the largest hedge fund in the world with $140 billion in assets under management. He is the author of Principles: Life and Work (2017). 

Dalio is a student of economic cycles. He recently produced a video describing how economic cycles work:

It’s his view on economic cycles that informs his All Weather Portfolio.

The Ray Dalio All Weather Portfolio

The Bridgewater Associates All Weather Fund

The All Weather portfolio dates back to 1996. It was the product of analysis by Bridgewater’s Bob Prince and Ray Dalio, among others. What they found is the economic cycles revolve around two things: Inflation/deflation and growth/contraction.

Source: https://www.bridgewater.com/research-and-insights/the-all-weather-story

As growth and inflation rise and fall, different asset classes either rise and fall. The goal of the All Weather portfolio was to gain exposure in roughly equal percentages of the various asset classes that perform well in each quadrant. At Bridgewater, the result was the following:

  • EM Credit: Emerging Market Debt
  • IL Bonds: Inflation-linked bonds (Tips, I Bonds)
  • Nominal Bonds: Bonds not linked to inflation (e.g., Treasury bonds)

Unlike a traditional asset allocation, the All Weather portfolio allocates just 25% or thereabouts to equities. The rest of the portfolio goes to various bonds and commodities, including gold. In this regard, in stands in sharp contrast to the 3-Fund Portfolio and the Warren Buffett Portfolio.

The above portfolio at Bridewater was available to corporate clients and pension funds. It was not available to the average investor, until recently.

The All Weather Portfolio

In 2016 Tony Robbins published Money Master the Game: 7 Simple Steps to Financial Freedom. For the book Robbins interviewed Dalio, who outlined the All Weather Portfolio in a way that average investors could mimic.

The portfolio consisted of the following asset classes:

  • 30% Stocks
  • 40% Long-Term Bonds
  • 15% Intermediate-Term Bonds
  • 7.5% Gold
  • 7.5% Commodities

According to Tony Robbins, here are the performance metrics for the portfolio from 1984 to 2013:

  • 9.7% annual returns
  • You would have made money 86% of the time
  • Average loss of just 1.9%
  • Worst loss was -3.9%
  • Volatility of 7.6%

The returns are remarkable given a volatility (standard deviation) of just 7.6%. By way of comparison, the S&P 500 has a standard deviation of more than 15%.

One way to implement this portfolio is to use the following ETFs:

  • VTI    30%
  • VGLT 40%
  • USCI  7.5%
  • GLD   7.5%
  • BIV     15%

I’ve created this portfolio in M1 Finance which you can check out here.

As noted earlier, this portfolio’s asset allocation is anything but traditional. Here’s a view of the allocation using Personal Capital’s Asset Allocation Tool:

Ray Dalio Portfolio Asset Allocation
Read my Personal Capital Review for more details on this free investment tracking app.

Backtesting of this portfolio is limited due to the commodities ETF. Still, we can see that it performed reasonably well since 2011 as compared to the Bogleheads 3-Fund Portfolio (80/20 allocation):

Note that it was neck-in-neck with the 3-fund portfolio until the recent post-Covid shock bull market. What’s noteworthy is that the Dalio portfolio’s standard deviation is just 6.23%, compared to 11.05% for the 3-fund portfolio. This in turn explains in part a Sharpe Ratio and Sortino Ratio much higher than the 3-fund portfolio.

In other words, the Ray Dalio portfolio performed better than the 3-fund portfolio on a risk-adjusted basis. At the same time, one can’t ignore that the 3-fund portfolio outperformed.

Long-term Bond Exposure

It’s hard to ignore the portfolio’s exposure to long bonds (and even intermediate term bonds) given current interest rates. If you believe that rates will rise, parking 40% of a portfolio in long-term bonds could be a recipe for disaster. Even Ray Dalio today questions why anybody would own bonds.

In his recent article, Why in the World Would You Own Bonds When…, Mr. Dalio described the economics of investing in bonds as stupid:

The economics of investing in bonds (and most financial assets) has become stupid.

He went on to explain why he believes bonds are in a bubble:

…If bond prices fall significantly that will produce significant losses for holders of them, which could encourage more selling. Bonds have been in a 40-year bull market that has rewarded those who were long and penalized those who were short, so the bull market has produced a large number of comfortable longs who haven’t gotten seriously stung by a price decline. That is one of the markers of a bubble.

Beyond the end of the 40-year bull run in bonds, Dalio goes so far as to say shorting bonds is a “relatively low-risk bet.”

If Dalio is right, and I believe he is, it calls into question the sustainability of the All Weather portfolio. Keep in mind that he recommended it to Tony Robbins in 2016. A lot has changed in the last five years.

2x Leveraged Ray Dalio Portfolio

It is worth asking whether it makes sense to used leveraged ETFs with the All Weather Portfolio. While I’m generally opposed to such measures, it’s common in risk parity portfolios to see leverage deployed to offset the low risk (i.e., low volatility) that these portfolios generate. The idea is to bring the volatility of the portfolio back in line with traditional asset allocation models, while enjoying slightly higher returns.

Creating the portfolio is easy in M1 Finance using ProShares ETFs. Here’s what it looks like:

2x Ray Dalio Leveraged All Weather Portfolio
Check out the portfolio at M1 Finance

Examining this portfolio in Portfolio Visualizer led to some interesting results. What follows is a comparison of this portfolio, the standard All Weather Portfolio, and a 3-fund portfolio using an 80/20 allocation:

It’s not surprising that the leveraged portfolio (Portfolio #1) outperformed the unlevered portfolio (Portfolio #2). What is more interesting is that it trounced the 3-fund portfolio (Portfolio #3) on both a total return basis and a risk adjusted basis (see both the Sharpe and Sortino ratios).

Pros & Cons of the Ray Dalio All Weather Portfolio

In the final analysis, the Rad Dalio All Weather Portfolio has several pros and cons:

Pros

  • Easy to implement with ETFs
  • Volatility lower than a “traditional” portfolio
  • Sharpe and Sortino ratios higher than a “traditional” portfolio

Cons

  • May underperform a 3-fund portfolio unless leverage is used
  • 50%+ allocation to intermediate and long-term bonds not ideal in current interest rate environment
  • Exposure to commodities and gold can underperform for long periods of time.

8 Best Investment Tracking Apps in 2021

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The ideal investment tracking app makes managing investments a breeze. Investment apps can track not only the portfolio’s performance, but also its fees, asset allocation and projected future growth. What follows are the best investment tracking apps based on numerous factors, including cost, features and ease of use.

Best Investment Tracking Apps
Table Of Contents
  1. Summary of Best Investment Tracking Apps
  2. How to Choose the Best Investment Tracking App
  3. Methodology
  4. FAQs
  5. Other Portfolio Management Apps I’m Tracking

Summary of Best Investment Tracking Apps

Personal Capital

Personal Capital is our Editor’s Choice, and an investment tracking app that I’ve used for many years. It earns our top ranking for several reasons. First, once you link your investment accounts to Personal Capital it automatically downloads all of your transaction, balance and returns data. It can link both retirement and non-retirement accounts.

7 Best Investment Tracking Apps in 2021

Second, in addition to performance data, it gives you data on the fees charged by each of your investments, and how those fees will affect your wealth over time. Third, It integrates all of your data into a robust retirement calculator you can use to plan your future retirement. 

You can link bank accounts, credit cards, investment accounts and even the value of your home through Zillow. In this regard, Personal Capital enables you to manage all of your finances, not just your investments. 

Pros

  • Free 
  • Automatically downloads all of your financial data
  • Tracks your asset allocation 
  • Tracks your investment fees
  • Integrates with a robust retirement tool 

Cons 

  • Personal Capital will contact you about their investment advisory services

Google Sheets

For those who don’t want to connect their financial accounts to an app, Google Sheets is ideal. Using the Google finance function, you can pull in data on mutual funds, ETFs and stocks. This can include a fund or company’s name, its price, performance, and its expense ratio. 

For those that don’t want to create their own, I’ve created a free investment tracking spreadsheet that you can use.

Pros

  • Free 
  • Doesn’t require connecting financial accounts to an app
  • Google Finance functions automatically download some fund and stock data 

Cons

  • Share totals are not automatically updated
  • Asset allocation is limited 
  • No retirement planning tool
  • No fee analyzer tool

Tiller

Tiller is without question my all time favorite budgeting app. What many don’t know, however, is that you can also use it to track your investments. At present, you can connect all of your investment accounts and Tiller will download your transactions and account balances. 

7 Best Investment Tracking Apps in 2021

It also has a retirement add-on that can determine your path to retirement. I recently spoke with the folks at Tiller and understand that they are also working on another add-one that will give you insight into your asset allocation.

Pros

  • Very easy to use
  • Integrates not just investment tracking but also budgeting 
  • Uses Google Sheets so it’s ideal for those who love spreadsheets

Cons

  • Investment analysis tools are currently still limited
  • After a 30 day free trial it costs $79 a year

Morningstar

Morningstar is another tool that I’ve used for many years. In fact, I’ve created a YouTube video course that walks through how to use the robust tools offered by Morningstar. The tools include a portfolio tracker.

7 Best Investment Tracking Apps in 2021

The one downside is that you have to enter your portfolio manually. You also have to update it manually. As a result, it takes a lot of work to keep your portfolio updated. On the plus side, Morningstar offers arguably the most robust amount of tools and analysis available today. 

Pros

  • Excellent investment tools and analysis
  • Track performance to the penny, including dividend reinvestments
  • Excellent mutual fund and ETF analysis tools
  • Free for basic portfolio tracker 

Cons

  • Data must be entered manually 
  • Data must be updated manually 
  • $199 annual fee to get access to all the morning stars data and tools

Quicken Premier

Quicken is arguably the longest surviving budgeting and personal finance software. I was using it more than 20 years ago. Today with Quicken Premier you can track your investments, including your performance and realized and unrealized gains. And it has tools to make preparing your taxes easier. It also pulls in data from Morningstar. On the downside, however, there’s an annual fee for the software of approximately $75.

Quicken Investment Tracking

Pros

  • Tracks performance of investments 
  • Tracks cost basis 
  • Makes taxes easier

Cons 

  • Quicken is somewhat outdated
  • Costs approximately $75 a year

I’ve used Quicken Premier to track investments, but today I prefer several Quicken alternatives for both investment tracking and budgeting.

Mint.com

Mint allows you to track all of your investments online. Similar to Personal Capital you connect both investment accounts as well as banking accounts and Mint downloads transactions and balances for you.

7 Best Investment Tracking Apps in 2021
7 Best Investment Tracking Apps in 2021

It comes with portfolio tracking for investments. It will keep track of your portfolio’s performance, and any investment fees you’re being charged. One big downside to Mint.com is it uses an advertising model. As a result, sometimes it can feel like you’re being bombarded with ads. For this reason, there are several Mint alternatives to consider.

Pros

  • It’s free
  • Can manage all of your finances
  • Automatically downloads transactions and balances

Cons

  • Advertising based
  • Limited investment and portfolio analysis tools

Fidelity Full View

The last investment tracking app on our list is Fidelity Full View. Fidelity’s tool is powered by eMoneyAdvisor, a finance app used exclusively by financial planners. I have access and use eMoneyAdvisor through a financial planner I work with (although I manage our own investments). With Fidelity Full View, however, you can get many of eMoneyAdvisor’s tools without going through an advisor.

Fidelity Full View

For example, Full View enables you to track your portfolio’s performance and asset allocation. You can track your net worth and spending as well. It doesn’t, however, offer the same reporting that eMoneyAdvisor offers.

Pros

  • Free
  • Tracks asset allocation
  • Monitors spending
  • Tracks net worth

Cons

  • Limited reporting
  • Reports and graphs could be better

Kubera

Kubera is the newest investment app in the list. I’ve added it for its simplicity and a few features no other app on our list offers. First, understand that Kubera has very few features. You can connect investment accounts, your home’s value (via Zillow) and even the value of internet domains you own.

Its visual presentation is clean and simple. You can organize your investments in buckets. For example, you could separate retirement, taxable, HSA and real estate. It provides a net worth summary with graphs. You can also track insurance policies, store important documents in its virtual “Safe Deposit Box,” and add “beneficiaries” who can receive all the information in your account should you die.

What Kubera doesn’t offer, however, is any analysis of your investment portfolio. There’s no asset allocation or fee analysis, and there is no retirement planner. On top of these limitations, Kubera costs $15 a month.

Pros

  • Clean, simple interface
  • Connect investment accounts
  • Track real estate, domains and insurance policies
  • Tracks net worth

Cons

  • $15/month or $150/year
  • No investment analysis
  • Graphs and charts limited

How to Choose the Best Investment Tracking App

The best way to track your investments depends on the complexity of your portfolio. For those with just a single account, a portfolio tracking app isn’t necessary. If all of your investments are in a 401k at work, you can simply track and manage your investments through the brokerage that holds your 401k. Likewise, if you have a single IRA account, you can track that investment easily wherever it is being held.

If you’re looking to open an IRA here are the best IRA accounts available today.

If, like me, you have multiple investment accounts, a tracking app is the best way to manage your investments. That’s particularly true if you hold investments at different brokers. This is common when individuals open up IRAs at brokers and have 401k’s elsewhere. It’s also common with spouses who often have retirement accounts at different financial institutions.

For these types of portfolios, an investment tracker that automatically downloads transactions and balances is ideal. Here, you want to look for an investment app that offers tools to help you analyze your portfolio. The most important tools give you insight into your asset allocation, investment fees and retirement readiness.

We rate Personal Capital as the absolute best investment tracking app, because it does all of this for free. The other apps in our list are also good options.

Methodology

The methodology used in selecting the best investment tracking apps was simple–I’ve used each and every one of them, along with dozens of other options not listed. In most cases, I’ve used the software for years.

I based the selection on several factors:

  • Cost
  • Automation
  • Investment analysis tools
  • Retirement planning tools
  • Ease of use
  • Dashboards, charts and reports

FAQs

What is the best investment tracking app?

In our view, the single best investment tracking tool is Personal Capital. It’s free and automated and comes with a wealth of investment analysis tools.

Are investment tracking apps hard to use?

Some are and some are not. With tools like Personal Capital or Quicken, It’s simply a matter of connecting your investment accounts. Once connected, the tools analyze all of the data and present it in a way that’s easy to understand.

Some software that must be downloaded, however, has a much higher learning curve. And for that reason did not make our list of the best options.

How do I set up investment tracking alerts with many of the tools on our list?

You can get notified when any transactions occur in your account. Personal Capital for example, will email you every day, week or month to notify you of any transactions in your linked accounts.

Other Portfolio Management Apps I’m Tracking

The above apps are the best I’ve found, but I am evaluating other stock tools:

Kubera: This is a new tool designed to track net worth. It has a clean interface and is easy to use. It also allows you to track other types of assets, such as domain names. The downside is that it costs $15 a month and doesn’t give you insight into the asset allocation of your portfolio.

Stock Rover: I’ve been using this tool for several weeks and really like it. It can be used for index fund investors, stock traders, and everybody in between. It includes tons of research data, useful historical data, and even asset allocation portfolios you can examine.

EquityStat: Another stock tracker with a clean interface. It’s ideal for tracking the performance of an investment portfolio. Unfortunately, it doesn’t give you any insight into the asset allocation of a portfolio.

7 Best Short-Term Investments to Save Money (May 2021)

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There are a lot of good reasons to hold cash. An emergency fund is a must. Then there’s saving for a home or vacation. Whatever the reason, the big question is where are the best short-term investments to park your money.

We’re in an historically low interest rate environment. In a Consumer Reports article from just two years ago, June 2019, it shows interest rates ranging from 2% at Sallie Mae to 2.75% at First Internet Bank.

Unfortunately, those days are behind us. They’re probably ahead of us too. I’m going to make a prediction that eventually we’ll get back to those rates. But right now, most big banks are paying about one basis point (0.01%).

You can do better. Here are 7 of the top short-term investments for your money.

Best Short-Term Investments for Saving Cash

1. Chime

Chime is what I would call a cash management app or a cash management account. It’s effectively a bank account, except that Chime is not a bank. There are a number of technology companies who have built incredibly easy to use mobile apps. They come with a debit card and they partner with an FDIC member bank. So Chime isn’t a bank, but it partners with an FDIC member bank so that your money is protected up to the FDIC insurance limits. 

Chime has both a spend account and a savings account. It also comes with a debit card. This could be your everyday checking and savings account. It’s currently paying 0.50% APY on the savings account . Overall Chime has had very good reviews on both the iPhone and Android platforms.

And for those trying to build their credit, Chime also offers the highly rated Chime Secured Credit Card.

2. Axos Bank Savings Account

For those who want a straight up savings account, Axos Bank is the top choice. Founded in 2000 as Bank of Internet, they rebranded as Axos Bank, an FDIC-insured financial institution with over $14 billion in assets. As of today, they’re paying 0.61% APY on their savings account. Like most online banks, it charges little in the way of fees.

3. Axos Bank Rewards Checking Account

Axos Bank gets another mention in our list, this time its Rewards Checking Account. They have five different checking accounts, including accounts designed for teenagers and seniors, and even a cashback checking account. For parking cash, the rewards checking account is an excellent option.

You can earn up to 1.25% on this checking account. You do, however, have to jump through some hoops. The starting point is you have to have a direct deposit of at least $1,000 a month. That by itself gets you an APY of 0.41%. Then use the debit card at least 10 times in the month on transactions of at least and your interest rate jumps to 0.82%. Finally,  use it another five times for a total of 15 or more transactions a month, and it all adds up to 1.25% APY. 

4. OnJuno

OnJuno account

OnJuno, like Chime, partners with an FDIC-insured bank for its customers. It offers an excellent app and currently allows you to earn 2.15% on deposits and 5% cashback with its premium metal card at select merchants.

Whenever you see something like that, you ought to know there’s going to be some qualifications because no one pays 2.15% on an unlimited amount of money. And nobody pays 5% cash back on all transactions. And that’s particularly true with debit cards. The first is the 2.15% is limited to either the first $5,000 saved, or if you go with their Plus account, it can go up to $30,000 saved. While the standard account has no monthly fee, the Plus account is free he first six months, then $9.99 per month. 

I did the math, the Plus Account makes sense if you save the full $30,000 in the account. After the monthly fee, you’re still earning about 1.75%. The 5% cashback is limited to five retailers of your choosing within their list. 

5. Varo

Working at Varo Bank | Glassdoor

Varo is another cash management account, not a bank, but partners with the bank. And here you can earn up to 3%. To do that you’ve got to make five qualifying purchases each period with your debit card, and you have to have a direct deposit of $1,000 or more, and your balance can’t exceed $5000. So this is obviously limited. For some of you, if you’ve got more than that, you’re saving for a home, these sort of options may not be ideal, on the other hand, could be a good way to save your emergency fund. 

It’s not a large balance that you can keep but the interest rate is so much more. I mean, if you compare this to say a traditional bank that’s paying just a couple of basis points, you’d have to put 100 grand in the bank a couple of basis points, maybe more, depending on the exact rate to earn the same rate you’d earn with just $5,000 in this account. So I think it’s worth considering and that’s why I included it in the list.

6. Bluevine

Business

For small business owners and freelancers that have a business, Bluevine is an excellent choice. Bluevine is very similar in a way to Chime or OnJuno except it’s for small businesses. It pays 1% on balances up to $100,000. There is no interest earned on balances over 100,000.

Update: Bluevine has currently paused new applications for its business checking account. I’ll update this post when they reopen the application process.

7. Fitness Bank

Fitness Bank

The last one on our list is called Fitness Bank. They tie in the interest rate you can earn by how many steps you walk each day. They pay up to 0.65% APY. You have to average 12,500 steps a day to earn this rate. If you get at least 10,000, you get 0.55%. Even if you sit in a barcalounger all day you’ll earn 0.25% APR

If you’re a senior citizen at least 65 years of age they cut you a break. You get the 0.65% APY at 10,000 steps. You do have to download their app and wear an approved fitness tracker, which include Garmin, Fitbit, Google Fit and Apple Health.

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