“The gone fishin’ portfolio: Get wise, get wealthy…and get on with your life” by Alexander Green

In a nutshell

Green’s 2008 book is a quick and informative read about how one might build a one-size-fit-all portfolio which only requires 20 minutes a year of maintenance. Worth a read even if not everyone would agree that: such a risky portfolio is appropriate for everyone (age 25 or 65), with the specifics of the portfolio allocation and/or that risk tolerance is irrelevant in setting asset allocation especially near/in retirement.

The details

Green provides his list of six factors governing the long term value of a portfolio: (1) amount you save, (2) length of time investments allowed to compound, (3) asset allocation, (4) return on investment (the only factor you can’t control), (5) expenses attracted by investments and (6) taxes

His proposed asset allocation is 70% stock and 30% bonds. The 70% stocks allocation is as follows: 30% U.S. stocks (15% Total Market and 15% small cap), 30% international stocks (10% each of European, Pacific and Emerging markets), 5%  gold mining stocks, and 5% REITS. The bond allocation is divided as follows: 10% TIPS, 10% high yield bonds and 10% high-grade bonds. He lists appropriate low-cost Vanguard mutual funds or ETFs to implement the portfolio. (Note that not only is there a 70% equity allocation, but 10% of the 30% bond allocation is high-yield bonds which behave as part equities and part bonds. So this is a pretty risky portfolio)

The book includes other recommendations:

-savings: for the <30 age group 10% of income and for the >30 age group >15% of income

-rebalancing once a year (plus one day for Americans who have higher capital gain tax rates for securities held <1 year) by selling funds above target allocation and reallocating proceeds of sale and new moneys to funds below target, which should only require 20 minutes per year.

-he recommends the same portfolio for 25 and 65 year olds, arguing that 65 year olds could also have three decades long horizon; he specifically argues that no “personal risk tolerance” driven portfolio is required, you just need to resolve not to sell should a market swoon occur (What about sequence of returns risk  during decumulation? Imagine the 70:30 portfolio dropping 35% should equities drop 50% and staying there for 4-5 years while you are also drawing 4% a year from the portfolio. Such a scenario might almost halve the portfolio and force reducing the annual draw by the same proportion. For those looking for “all-in-one” portfolio solutions might want to explore the approach taken in Vanguard‘s target-date, life-strategy and managed payout funds)

-asset location should be tax aware so tax-inefficient assets (e.g. bonds unless tax exempt and perhaps small cap) are placed in tax-deferred account

-importance of having a specific target that you are aiming for which would meet your retirement needs by taking 4% a year from it, i.e. you need 25x the required/desired draw (after factoring in other pension like income like Social Security, pensions and annuities)

Bottom line

Worth a read even if not everyone would agree that: such a risky portfolio is appropriate for everyone (25 or 65), with the specifics of the portfolio allocation, and/or that risk tolerance is irrelevant in setting asset allocation especially near/in retirement.

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