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
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!)
Click on the “Portfolio Developer’s” name to view the portfolio.
|Portfolio Developer||Number of
|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|
|Yale U’s Unconventional||6||6.31|
|Second Grader’s Starter||3||5.86|
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.
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