To be described as "ultimate," a retirement portfolio strategy had better be mighty good. This one is. It has a long historical record of "beating the market" by outperforming the Standard & Poor's 500 Index SPX, +1.05% — with less risk the 15.5% standard deviation of the index.
Here's the shortest description I can give you: In a nutshell, 60% of this portfolio is a sophisticated combination of equity funds with massive world-wide diversification that includes value stocks, small-company stocks and real-estate funds added to a traditional large-cap growth stock portfolio. The other 40% is made up of short-term to intermediate-term government bonds.
Step One: The basics
The first chart has only two slices, 60% in for stocks (S&P 500 500 index) and 40% in bonds (Barclay's Government Credit Index). This is a traditional industry standard, approximating the way that pension funds, insurance companies and other large institutional investors allocate their assets. The stocks provide long-term growth, while the bonds add stability and income.
Let's use this as our benchmark. For 44 years, from January 1970 through December 2013, this portfolio would have produced a compound annual return of 8.8%. Not bad, especially considering this period included four of the most severe bear markets of the past 100 years.
Allocated this way, an initial investment of $100,000 in 1970 grew to over $4 million by the end of 2013.
Most of the details of this strategy involve the 60% stock side of the pie, and that's the main focus of this article. But the bond part is very important.
Most of the details of this strategy involve the 60% stock side of the pie, and that's the main focus of this article. But the bond part is very important.
Actionable Items
It is challenge part to prepare $100,000 dollars to start a portfolio. I am working on my Canada portfolio Victoria using three ETFs, $37,000 dollars portfolio, using equity 60%, bond 40%, similar idea.
Deviation is something I have to learn more carefully. When I make decision, I have to learn deviation is normal, and bear market is normal as well.
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