The Gone Fishin' Portfolio - Standing The Tests of Time...
Tired of constantly watching a screen to see if you can make money? Well, sooner or later you'll find out that your most precious resource is actually your time - it's perishable, irreplaceable and unlike your other assets such as money - it can't be stored or saved. When you realize this, you'll cherish your short life and energy and just want to seek whatever gives you greater pleasure or fulfillment - family, friends, hobbies, traveling, sports etc. In short, you want to be wealthy with the least bit of effort. You want the easy way. You want passive income, cost-efficiently, with the absolute minimum time and attention.
In addition to managing my own money, I also manage others. But sometimes, it gets so tiring that you just want to put up your feet, and take a break. That's where the Gone Fishin' Portfolio comes in. It's like investing on autopilot. It's an investment strategy that keeps things simple, straight forward and hassle free. It gives you free time to go fishing or play golf or enjoy living, while you make money! The beauty of this investment strategy is that you don't need to know high level maths or economics, heck you don't even need a computer - just spend 15 minutes a year maximizing your return and minimizing your risk - that's investment success! And you don't need to indulge in any financial news.
The concept behind this strategy isn't really new, in fact it was based on studies of Nobel Prize Winner - Dr Harold Markowitz and resurrected by Alexander Green in his book The Gone Fishin' Portfolio. (Quick disclosure: I'm a member of The Oxford Club's Chairman Circle - the same group Alexander writes for.) There's a saying give a man fish, and he'll last a few days... teach him to fish and he'll last a lifetime. That's exactly what I want to do here... Teach you how to fish! Yep, go fishin! You want the peace of mind that your portfolio is steadily growing.
And as I always say... Make your money work harder for you! Let the power of compounding take affect. BTW, this is not a book review! If so, the book can be summarized: "about handling the money you intend to retire on simply, effectively, and cost-efficiently, with the absolute minimum of time and attention". This is an article based on real results and experience, with a bit of how-to added. If you enjoy reading financial books - buy your copy of The Gone Fishin' Portfolio: Get Wise, Get Wealthy...and Get on With Your Life.
Track Record: Does it work?
Well, I wouldn't recommend this investment strategy if it didn't work. I invested a small amount of $4,000 as per the allocation in ETFs, and left them for around 6 months. In just 6 months, I've generated 11% returns. I don't want to annualize that... because that would be close to 25% return. If you can consistently generate 10% returns year on year... You're far ahead of the crowd! You're looking at long term success. This is the closest you can get. Over the past eight years, The Gone Fishin’ Portfolio hasn’t just beaten the market every year.
The Gone Fishin Portfolio is an investment strategy to develop a portfolio that requires very little of your time and produces market beating results. This involves investment tactics like 1) asset allocation, 2) low expenses, and 3) rebalancing.
1. Asset Allocation
The secret of many great investors is: Asset Allocation - the process of developing the most effective – optimal – mix of investments. Research demonstrates that Asset Allocation accounts for approximately 90% of investment returns, making it nearly 10 times as important as stock picking and market timing combined. There is no other investment strategy that can boast the same.
There's a saying that you shouldn't put all your eggs in one basket, and one basket doesn't necessarily mean one stock... It can also mean one asset class. With Gone Fishin' Portfolio, you're diversifying across different asset classes: stocks, bonds, property, cash and precious metals. To do this, you use a special asset allocation percentage among large and small stocks, foreign shares, real estate investment trusts (REITs), gold stocks and three different types of bonds (high grade corporates, junk bonds and inflation-adjusted treasuries).
The actual percentages run as follows: 15% – US Large Caps, 15% – US Small Caps, 10% – European Stocks, 10% – Pacific Rim stocks, 10% – Emerging Market Stocks, 10% – High Grade Bonds, 10% – High Yield Bonds, 10% – TIPS, 5% – Gold mining stocks, 5% – REITs. In short it has low what we call low correlation and that means when the one stock zigs the other zags. That's it – buy this portfolio, watch your expense ratio, and rebalance annually. Some say put your eggs in one basket and watch that basket closely. But we're too busy to watch, so we'll diversify! With every investment there's always a risk and a reward (return).
What you should strive to do is minimize the risk but at the same time maximize the reward. You can achieve this by carefully diversifying our investment (allocating assets) across different asset classes. The optimum portfolio size is 10. You don't need to watch 10 different investments, but you do need to rebalance, so 10 is a manageable number. So you're going to keep them in three different basket sizes - a) 5% basket, b) 10% basket and c) 15% basket. Look at it this way, you have 2 stocks each in the two extremes - 5% and 15% allocation baskets and the remaining 6 in the central 10% allocation. What's more is that you have a 30% allocation to U.S. stocks, divided between small-cap and large-cap stocks. Likewise, the 30% allocation to international markets is evenly divided between Europe, the Pacific and Emerging Markets. Now talk about diversification!
2. Low Expenses
The second most important aspect is to keep your costs down. Remember, costs can come in the form of management fees or fund fees (aka expense ratio) and in the humble form of taxes - capital gains taxes. As per Alexander's recommendation - you can create the portfolio using Vanguard Funds (because of lower costs). But I also came across a list of ETFs (Exchange Traded Funds) that serve the purpose. You see, I couldn't buy Vanguard (presumably because I'm a foreign non-US citizen?). ETFs are just as good and have gained a lot of favor recently due to the low expense-ratio.
| Fund | Symbol | Family | %age |
|---|---|---|---|
| Vanguard Total Stock Market Index | VTSMX | Vanguard | 15% |
| Vanguard Small-Cap Index | NAESX | Vanguard | 15% |
| Vanguard European Stock Index | VEURX | Vanguard | 10% |
| Vanguard Pacific Stock Index | VPACX | Vanguard | 10% |
| Vanguard Emerging Markets Index | VEIEX | Vanguard | 10% |
| Vanguard Short-term Bond Index | VFSTX | Vanguard | 10% |
| Vanguard High-Yield Corporates Fund | VWEHX | Vanguard | 10% |
| Vanguard Inflation-Protected Securities Fund | VIPSX | Vanguard | 10% |
| Vanguard REIT Index | VGSIX | Vanguard | 5% |
| Vanguard Precious Metals Fund | VGPMX | Vanguard | 5% |
| [ OR ] | |||
| Vanguard Total Market | VTI | ETF | 15% |
| Vanguard Small Cap | VB | ETF | 15% |
| Vanguard European | VGK | ETF | 10% |
| Vanguard Pacific | VPL | ETF | 10% |
| Vanguard Emerging Markets | VWO | ETF | 10% |
| iShares High Yield Bond | HYG | ETF | 10% |
| Vanguard Total Bond | BND | ETF | 10% |
| iShares Lehman TIPS | TIP | ETF | 10% |
| Vanguard REIT | VNQ | ETF | 5% |
| Market Vector Gold | GDX | ETF | 5% |
3. Rebalancing
And last but not least, here's the secret sauce. It's in rebalancing, but don't worry - it will take just 15 minutes a year to do! Just follow the 7 steps below:
- Find out the Market Price the day before you want to rebalance your portfolio. Use that as the basis shares (you won't see much difference in trading).
- Multiply the Market Price of each GFP fund into the number of shares in each allocation. (Sum it up and compare with how much you originally invested). Assuming you want to invest the same amount.
- For each GFP fund allocation, multiply the GFP percentage into the new sum/total calculated above. This gives you a New Dollar Value Allocation.
- Add the Original Dollar Value Allocation value to the New Dollar Value Allocation.
- Subtract the Current Market value of each GFP fund allocation from the New Dollar Value Allocation.
- Divide the Addition Value by the Current Market Price to get the Number Of Shares you need to buy. Round of to the nearest whole.
- Rinse and repeat next year.
If that sounds a bit complicated, just download my sample spreadsheet and play around with it. Remember, once you get the hang of it... don't even look at it for one year. To use the advice of my wife, Maria - Your precious metal investments are like a cake in the oven; you’ll ruin them if you keep opening the door. (Ok, I cheated and did a 6 months check. But hey, you're your best advisor!). So to rephrase Hero Honda, fill it, shut it and forget it. Managing your money isn't really as complicated as many 'expert' financial advisors want to make you think! Don't you agree?Is there more? Yes, other sites:
- The Official Gone Fishing Portfolio Website
- Comparisons of the GFP
- GFP Book: Business Week Best Seller List
- No money? Too cheap to buy? Pirated Version (C'mon support the author! Buy it!)
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