This simple, no-sweat portfolio makes money in all markets

Especially if you want your savings to go to work and make you money in all environments—booms and slumps, crashes and manias, deflation and inflation, stagflation and apocalypse.

And especially if you figure you do enough sweating actually making your money, without wanting your money to make you sweat any more every time you check your 401(k).

I’ve just checked in with Doug Ramsey, the chief investment strategist of money management firm Leuthold & Co. out in Minnesota. He’s been tracking a portfolio of multiple asset classes going back 50 years, and I’ve written about it before. But after our talk and with some further analysis, Ramsey has come up with a refinement to his All Asset No Authority portfolio.

He’s built an even better mousetrap.

The original AANA portfolio consists of equal amounts invested in seven different assets: U.S. large-cap stocks, U.S. small-cap stocks, U.S. 10 Year Treasury notes, U.S. Real Estate Investment Trusts, International stocks, Commodities and Gold. It’s a beautifully simple “all weather” portfolio.

As we’ve mentioned, Ramsey found that this simple portfolio, adjusted just once a year to restore it to an equal weighting across all seven asset classes, had performed terrifically in all environments over the past 50 years. Returns over the full half-century have been nearly as good as the S&P 500, but with a fraction of the risk, and with no lethal “lost decades.” Returns have trounced the so-called “balanced portfolio” of 60% U.S. stocks and 40% Treasury notes.

But, as said, Ramsey has now improved on it.

One of his remarkable findings about these seven asset classes is that in any given year your best single investment was likely to be the one that had done second best the year before. In other words, last year’s silver medalist was likely to be this year’s gold medalist.

So I asked him what happened to this portfolio if you converted it from seven equal parts to eight, to include a double investment in the previous year’s silver medalist?

Bingo.

He’s just got back to me. And, running the numbers all the way back to 1973, he’s found that this portfolio has produced even better returns and even lower risk. What’s not to like?

Adding an extra investment in last year’s silver medalist asset boosts average annual returns by about half a percentage point a year.

Over half a century it’s even beaten the S&P 500
SPX,
-0.76%
for total long-term return: While beating it into a cocked hat for consistency.

Measured in constant dollars, meaning adjusted for inflation, this portfolio would have earned an average compound return of 6.1% a year. The S&P 500 during that period: 6.0%.

But the worst five-year performance you had to endure during that entire half-century from Ramsey’s improved all-asset portfolio was a gain (in constant dollars) of 3%. In other words even in the worst scenario you kept up with inflation (just).

The worst performance of the S&P 500 over that period? Try minus 31%. No, really. In the mid-1970s, the S&P 500 lost you a third of your purchasing power even if you held it, in a no-fee tax shelter, for five years.

In half a century, the S&P 500 has lost purchasing power over a five-year period about one quarter of the time. (Again, that’s before taxes and fees.) It’s easy to shrug that off in theory and think about the long-term—until you have to live through it. As research consistently shows, most investors can’t. They give up and bail. Often at the wrong time. Who can blame them? You lose money year after year, with apparently no end in sight?

So $1 invested in the S&P 500 in 1972 would have bought you less 12 years later, in 1984. And $1 invested in the S&P 500 at the end of 1999 would have bought you less 13 years later, in 2012. Including dividends — and before taxes and fees.

Among Ramsey’s seven assets, last year’s silver medalist asset was gold (yes, yes, I know, how can gold be a silver medalist?). Bullion actually broke even in 2022, trailing commodities, but beating everything else.

So, courtesy of Doug Ramsey, for 2023 our modified all-asset portfolio consists of 12.5% or one-eighth each in U.S. large-caps, small-caps, international stocks, real-estate investment trusts, 10 Year Treasury bonds and commodities, and a full 25%, or ¼, in gold bullion: Meaning, say, 12.5% each in the ETFs
SPY,
-0.73%,

IWM,
-0.96%,

VEA,
-0.11%,

VNQ,
-0.55%,

IEF,
-0.19%
and
GSG,
+0.95%
and 25% in
SGOL,
+1.65%.

There are no guarantees, and there are plenty of caveats. For instance, most money managers—even those who like gold — would tell you that’s a lot of gold. Meanwhile gold and commodities earn no income, which makes them very hard to value according to modern finance. There are legitimate questions to be asked about the investment role of gold in a modern economy, when it isn’t even officially money any more.

There again, you can raise serious caveats about any investment class.

This portfolio’s track record comes from half a century’s data. Are the “conventional wisdom” portfolios bandied about on Wall Street based on anything more robust? And how many of those are based only on performance data since 1982, during the era when collapsing inflation and interest rates set both stocks and bonds alight?

As ever, you pay your money and you take your choice. I will, at least, be checking in here from time to time on how Ramsey’s two mousetraps—AANA and the refinement—are doing. Stay tuned.