Diversified Portfolio = Subpar Performance

The Investing For Retirement Claim

Diversified portfolios deliver subpar performance when compared to a single, broad market index fund (Vanguard’s Total Market Index Fund (VTI) for example) when the portfolio is held for 15 years or more.

Evidence That Supports the Claim

Advice From A “MarketWatch” Advisor

Here is “investment advice” from Paul B. Farrell, senior investment columnist for MarketWatch. MarketWatch is a subsidiary of Dow Jones, a property of News Corp. MarketWatch is part of Dow Jones’ Consumer Media Group, along with The Wall Street Journal, Barron’s, the WSJ.com and affiliated internet properties.Presumably Mr. Farrell has some chops!

He points his readers to eight different portfolios developed by investment advisors. The “lazy” part of the portfolio comes from the idea that the portfolio will be easy to maintain. (Well… not as easy to maintain as a portfolio with only one security. These recommended portfolios have between three and ELEVEN securities!)

8 Lazy Set and Forget Portfolios

Click on the “Portfolio Developer’s” name to view the portfolio.

Portfolio Developer Number of
10 Yr
Aronson Family Taxable 11 5.85
Dr. Bernstein’s No Brainer 4 5.74
Fundadvice Ultimate Buy & Hold 11 4.66%
Dr. Bernstein’s Smart Money 9 5.20
Coffeehouse 7 5.95
Yale U’s Unconventional 6 6.31
Margaritaville 3 4.85
Second Grader’s Starter 3 5.86

Vanguard Total Market Fund (VTI)

1 7.54

More Evidence

In study after study, the diversified portfolio has failed to match or exceed the performance of VTI, a single index fund that tracks 3500 USA stocks. Below are multiple diversified portfolios, most  of which were constructed by people with significant understanding of stock markets and the theory of diversification. None of them outperform the VTI.

NOTE All the comparisons below use DIA, an ETF that perfectly tracks the Dow. After I used DIA in the comparisons, I learned that VTI was as good as or better than DIA. I don’t feel the need to go back and change DIA to VTI in the comparisons below since VTI is as good or better than DIA.

Eight More Diversified Portfolios From Marketwatch  DIA beats every one of them

Oxford Community Foundation  DIA outperforms 1.7 -1

The Harvard-Yale Diversified Portfolio  DIA outperforms 3-1

Fidelity Freedom Funds DIA outperforms 2-1

MorningStar’s Target-Date Funds  DIA outperforms 3-1

AmSouth Managed Account – DIA outperforms 4-1

State Teacher’s Retirement System of Ohio
DIA outperforms 1.18 to 1.

IFR Personal Sharebuilder Portfolio,  early 2007 DIA outperforms 3-1


For a portfolio that is expected to have a long life (15 or more years) there is no advantage to a diversified portfolio over a single, broad market index fund. In fact, the single index fund outperforms every one of the diversified portfolios examined by this author.

 Return to “Why No Diversification

Return To “IFR Strategy

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