The Personal Finance Podcast - 10 Powerful Portfolio Strategies (And Which One is Right for You!) - Part 2

Episode Date: April 9, 2025

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part two. And welcome to the personal finance podcast. I'm your host, Andrew founder of Master Money. And today on the Personal Finance Podcast, we're going to be diving into 10 portfolio strategies and which one is right for you, part two. If you have any questions, make sure you join the Master Money Newsletter by going to mastermoney.com slash news. newsletter. And don't forget to follow us on Spotify, Apple Podcasts, YouTube, or whatever podcast

player you love listening to this podcast on. And if you want to hop out the show, consider leaving a five-star rating and review on Apple Podcasts, Spotify, or your favorite podcast player. Now, if you did not hear part one of this episode, make sure you go back and listen to part one, because this is going to be part two, diving into six more portfolio strategies and figuring out which one is right for you. the first episode, we went through first, the simple path to wealth portfolio. Then we went through Warren Buffett's 9010 portfolio. We dove into Scott Burns, the Couch Potato Portfolio, which is an interesting one. And then number four is we went through the Bogleheads portfolio. But we've got

a action-packed list here for you today, because we're going to go into Dave Ramsey's portfolio, Ray Dalio's portfolio, Paul Merriman, friend of the show, who's been on this show's portfolio, and much, much more today. Now, If you didn't hear the first episode, we are diving deep. We're kind of going in the weeds on these episodes. But I'm also talking through how these portfolios performed historically in the past, meaning that how did they perform during the tech bubble? How did they perform during the 2008 crisis? How did they perform as time went on and they search? And who are these portfolios for? Are they for early retirees? Are they for people who are closer to retirement age? Are they for young investors? We're going through each and every single one. Now, the first four that I went through on the first, episode are all portfolios that are going to be much more simple than the portfolios that we are talking about today because my list gets progressively more complicated as time goes on. And in that first episode, what we did was we talked through how you should think about your asset allocation and how you should think about how your portfolio should be constructed. So if you have not heard

that first one, I highly recommend going through that one first before diving into this one. But we're going to get into the next fund next, which is Dave Ramsey's Four Fund Strategy. All right, so we're going to dive into Dave Ramsey's four fund portfolio, which is an actively managed investment approach that decides on four types of mutual funds with equal weighting of 25% each. So Dave owns four different mutual funds, 25% each, and number one is going to be growth or large cap stocks. And so the U.S. big companies like Apple and Amazon and Google will be 25% of that portfolio. Now, he also has growth in income, which is dividend paying stocks at 25%. Now, this is going to be stable, dividend-producing large companies. Then he has 25% in aggressive growth, which is high-risk, high-reward stocks.

And the number four is international stocks. He has stocks from outside the U.S. for global diversification. So he structures it in this way. Now, one thing that Dave does is he invests in mutual funds. Now, mutual funds are going to have higher fees, which will talk more about that here in a second. But what I'm going to do is kind of try to construct and help you construct this in an index or equity fund way.

So let's look at a couple of these. For the growth, you can have something like the S&P 500 index fund, which is VFIAX, or the Fidelity large cap growth index fund, which is something like FSPGX. Then we have growth and income. So you can do Vanguard's dividend growth fund, which is VDIGX or Fidelity's equity income, which is FEQ IX. Now, these, again, are not recommendations. These are just options that are out there that you can do more research on.

Next is aggressive growth. So Vanguard has a small, cap growth index fund, which is VSGAX, and Fidelity has a small cap growth index fund, which is FCPGX. And then there's the international funds like the Vanguard Total International Stock Index Fund, or VTIAX, and Fidelity's international fund, which is FSPSX. Now, this portfolio aims for high growth while diversifying across different types of stocks. Now, why is it constructed this way? Dave believes that this portfolio balances growth and stability while keeping investors engaged, And his key principles behind this are, number one, that stock market growth is the best way to

build wealth. So he does not believe in bonds whatsoever at all. And so stating that over long period, stocks have historically outperform bonds. Now, this portfolio is 100% equities, which means it can grow faster than mixed stock bond portfolios. Two, is that he does have that diversification across market segments. So he has the large company, he has small and midcap companies, and he has that international stock exposure instead of just investing in the S&P 500. He's trying to make sure that he has exposure to all these different sectors, and that is his goal. It also avoids market timing and actively manage fees. So he strongly advises against actively managed mutual funds with high fees. So he looks for lower feed mutual funds.

Instead, he recommends no load, no fee funds that follow index-like strategies now. So that has shifted a little bit over the time for him, but that is something that he looks at. Now, this portfolio is for aggressive investors who want to maximize growth, but still have diversified. diversification within their stock portfolio. And so this might be better than others if you are looking for more diversification than just a one fund strategy, even though that one fund strategy does own stocks in all these different market sectors, which is kind of part of the argument. Number two is higher growth potential than maybe traditionally balanced portfolio. So if they have more bonds or a ton more international than what this portfolio has, then it maybe has a little

more growth potential. And it is easier than picking individual stocks again. And so if you want to pick individual stocks, more power to you, but this is a lot easier than that. Now, the potential drawbacks or there are no bonds, so there might be higher volatility for people who can't handle that volatility. And so this can experience huge drops during recessions. And small cap and international exposure increases the reach. So the small cap and international stocks tend to be more volatile than even U.S. stocks. And so you're really going to have a bumpier path with a portfolio like this because of that small cap and that international exposure. Now, it also does require a little more rebalancing than all the other portfolios that we've talked about

thus far. And so that is another consideration as you start to think about this. Now, how has this portfolio performed over the course of the last 30 years? So it has had an annualized return of 9% per year, similar to the three fund portfolio over the course of the last 30 years. And so $10,000 invested in 1994, it's actually had a little more than 9% because $10,000 invested in 1994 grew to $150,000 in 2024. So $10,000 more than the three fund portfolio. And it slightly outperforms a pure S&P 500 portfolio during high growth periods. But the higher volatility makes it riskier during downturns. Now, how performs in good and bad times? Let's look at this. The best year was 2003, where it increased 37% when the market booms the portfolio benefits significantly from small cap

and aggressive growth stocks. So because there's small cap stocks in here, small caps will grow very quickly, but they also will get reduced very quickly as well. They will go down very fast. It's worst year with 2008, and this portfolio suffered heavily during the great financial crisis because it has no bonds to cushion it. It dropped 40% in 2008. It performed very, very well during the tech boom, and the dot-com crash, it lost nearly half of its value during the dot-com crash because it doesn't have any protection. So again, this is extremely volatile portfolio. This is the most volatile we've seen thus far. Now, in 2008 financial crisis, again, it dropped that 40%. And then during COVID-19, it lost more than 30% in March of 2020, but we're covered quickly with the stock market like

everything else has. Now, biggest risk? Extreme volatility in this portfolio. It's moving up, and it's moving down. It can lose 35 to 40% or more, depending on what is going on economically. And it has no protection from bonds or fixed income. So if the market crashes, there's nowhere to hide with this portfolio. This is guns ablazing. Here we go. We are going all out and all in on this portfolio. So people who should use the strategy, who should use it, who should avoid it, or consider using it and avoid it and doing more research. Aggressive investors willing to accept high volatility for higher returns. If you are looking to gunsling out there and you know you're willing to stay invested over the course of the long run, great portfolio

for you maybe. And then people with long investment horizons, you've got to have 20 plus year investment horizons for this one. If you're going to need the money in the next five to 10 years, may not be the gunsling and portfolio for you. Investors who believe in 100% stock portfolios and don't what bonds, this is also going to be one for you. Now, it's not ideal for retirees or conservative investors who can't afford large market crashes. So if you're retiree and you cannot afford your portfolio to drop 30, 40, 50%, this is not the portfolio for you. If you are someone who panics during down turns. This is also not the portfolio for you. This is as aggressive as you can get. And investors who prefer passive strategies, if you like more passive strategies, this requires

actively choosing and rebalancing for funds. And so if you want to be a little more passive, this may not be for you. So it is a aggressive 100% stock-backed portfolio looking from maximum long-term growth. But it does come with those major risk. And if you can handle the volatility and you have a long-term time horizon, it can work well. But if you need stability, this is not the best option for you. Let's get to the next one. All right. Next, we have Bill Bernstein's no-brainer portfolio. Now, this is also going to have four equally weighted asset classes. They're just a little bit different than what Dave has here. And so this no-brainer portfolio was designed by Bill Bernstein, who is a neurologist,

turned financial expert, and the author of The Intelligent Asset Alligator. I encourage a lot of people to go read that if you haven't. It's a pretty good book. And one that I think, A lot of people could benefit from. He makes the argument for this portfolio in that book. And it has a broad diversification with a simple allocation as well, making it easy for investors to follow. Now, this consists of four equally weighted asset classes at 25% each. It has large cap stocks. And this is going to be U.S. companies.

You already probably know if you've been listening to this podcast for the last episode and this episode what large cap stocks are, but it's the big U.S. companies. Small cap stocks, which are smaller U.S. companies, with high growth potential. International stocks, which is going to be the non-U-S companies, and then short-term bonds. So some common funds used for this one. For large-cap stocks, you can look at something like VFIAX at Vanguard,

which is the S&P-500 Index Fund. You can look at Fidelity's large-cap growth index fund, which is FSPGX. And then for the small-cap stocks, something like Vanguard's small-cap index fund, which is V-S-M-A-X, V-S-M-M-X, or Fidelity's small-cap index fund, which is V-S-S-N-X.

And then at international stocks, you can look at something like VTIAX for Vanguard's Total International Stock Market Fund. And then you can also look at like Fidelity's International Index Fund, which is FSP, as in Pogo Stick, SX. And then we have short-term bonds. And so short-term bonds are going to be something like VBIRX, which is Vanguard Short-Term Bond Index Fund. And then we have Fidelity's short-term bond index fund, which is FSHBX. And so why is this kind of constructed in this way. It's built on three key principles. Number one is diversification across all U.S. and international markets. So the large cap and small cap stocks capture different segments of the economy. And international stocks provide exposure in global markets, reducing the

dependency of the U.S. economy. Now, the bonds are going to help reduce that volatility again, as bonds always do. And so instead of being 100% stocks, these short-term bonds can provide a cushion if there's market crashes. And then short-term bonds are less affected by the rising interest rates and compared to long-term bonds. Now, it is very simple and easy to manage. And so with this portfolio, 25% allocation across those four asset classes means you don't have to adjust the weights often. And you just rebalance once a year in your set. That is his rule also is to rebalance once a year. For a lot of these, if you're going to rebalance, it's just worth it, you know, once a year to look at that allocation, make sure it didn't get too far out of whack. If you believe in rebalancing, we have an entire

episode talking about rebalancing. If you have not heard that episode, it is worth a listen most likely. Now, why this may be better than other options for you. Number one is it's more diversified than just the S&P 500 portfolio under like a single fund market strategy. This includes small cap and international stocks. And small cap stocks often outperform large cap stocks in bull markets. It also has lower volatility than just a 100% stock portfolio with the 25% bond allocation smoothing out big market drops, and it makes it less volatile than a 90-10 or a Ramsey four-fund strategy. You don't need to pick winners again. With this portfolio, you own everything, which large-cap, small-cap, international, and bonds.

And you benefit from those broad market gains instead of just relying on a few big companies. Some of the biggest drawbacks with this one is there's lower returns than all-stock portfolios. International stocks can also underperform because over the last few decades, again, international stocks have been underperforming and require some rebalancing. again, there's four funds. And so once you get past three funds, rebalancing is going to be something that you're going to have to think about every single year more and more as you add funds to your portfolio. And so this is a four fund portfolio that I think can make sense for some people, but you've got to think through this. Now, the annualized return for this one is 8% every single year. So it's better than the 50-50 couch potato,

but lower, again, than the one fund portfolio. So so far in this race, the one fund portfolio, VTSAX, which was in the simple path to wealth, is winning. on the rate of return over the course the last 30 years, which is very interesting. Simplicity is winning. $10,000 invested in 1994, grew to $100,000 in 2024, a little over 100, and bonds helped reduce drawdowns, but at the cost of some growth. And so this is by far not the best allocation in terms of getting the best performance out there because the 50-50 couch potato, you know, just returned slightly less and it had 25% more bonds in it.

So how does it perform in good and bad times? Its best year was 2003, where it gained 30% because of that small cap allocation. So what you're noticing here is that stocks with huge S&P 500 allocations, their best year was 1995. The ones with more small cap allocation, their best year was actually 2003. And so adding that diversification does give you some bigger wins in different years when you add that diversification in. Its worst year was 28%.

So the great financial crisis hit stocks hard, but bonds help cushion those losses. So because this has a 25% allocation, those bonds help reduce that hit. Now, again, the Warren Buffet portfolio had a 33% loss. This had a 28% loss, and it has more than double the bonds in the portfolio. And so you're sacrificing growth, which is why Warren, I think, argues all the time, that his allocation is pretty good. Now, during the tech boom, it performed very well because small cap and large cap stocks surged.

And then during the COVID-19 crash, stocks crashed 30% March, but the bonds provided a buffer. portfolio recovered very quickly. So the biggest risks here are going to be the smaller companies and international stocks are more volatile. Bonds can underperform at high inflation if inflation rates rise. And then we are also looking at if interest rates rise, bonds may struggle. So it's great for investors who want balance between growth and risk reduction. And it's also for people who want global diversification, but still want U.S. stocks to dominate and those who want less volatility than a 100% stock portfolio, but more growth than a 50-50 portfolio, this one may be. be for you. Now, it's not ideal for investors who are seeking maximum growth. A hundred percent

stock portfolio will likely perform better over decades. And people who want a truly passive approach, this requires rebalancing annually to maintain that 25 percent split. And so the bottom line is the no-brainer portfolio has a solid mix of growth and stability, making it a great choice for those who want strong returns without that extreme volatility. And so that is what a lot of people can look at. Probably not the portfolio for me only because it just didn't perform. as well as some of these other ones. And so for me personally, it is not the one I'm going to look at, but it does have that 25% bond allocation.

If you want to weather out the storm more, it's basically a 75, 25 total. So you could definitely look at this one if you were interested in do a little more research. Definitely recommend his book, though. His book is fantastic and it helps educate you even more on some of these portfolios. Now we're going to get into Ray Dalio's all-season portfolio, which has even more funds.

All right, number seven is Ray Dalio's All-Sys, season portfolio. So the all season portfolio was created by Ray Dalio, who is a billionaire investor and founder of Bridgewater Associates. Now, this is one of the largest head funds in the world. And the goal of this portfolio, this is kind of what he presented to investors who were trying to figure out, hey, how does Bridgewater Associates put together their portfolio? And this is his individual investor version of it, basically stating, hey, this is kind of what we do. And this is our all-weather and all-season portfolio. Now, the purpose of this is this is our all-weather and all-season portfolio.

Now, the purpose of this portfolio is it's designed to perform well in all economic conditions. Whether the market is going up, down, or sideways, Dahlio's idea is that the different asset classes perform well in different economic environments. So that by balancing them properly, you can create a portfolio that is resistant to market crashes. Now, it consists of five different asset classes, and each one is weighted to provide stability in growth. So first, 30% of it, it goes into U.S. stocks. Now, this is the portion where I have a hard time because 30% in U.S. stocks is tough for me because

I believe in the long-term growth of the U.S. economy. Now, 40% is in long-term bonds, meaning it helps in economic downturns and deflationary period. 15% is in intermediate term bonds, which adds for further stability. And then 7.5%, this is the first time we've seen these two asset classes, is in gold. And so a hedge against inflation and market uncertainty. and 7.5% is in commodities, which protects against rising prices and inflation. And so he has these five different categories that is supposed to weather out all these different storms. So what are some common funds if you are interested in looking into them more?

For the U.S. stocks, obviously, VTSAX, we've been talking about the whole way. And then Fidelity's version is FXKAX is one. And then for long-term bonds, I shares has a 20-plus-year-term Treasury bond ETF, which is TLT, and Vanguard has a long-term treasury fund, which is V-U-S-T-X. And then for intermediate term bonds, I-Shares has a 7-10-year treasury bond ETF, which is IEF, and Vanguard's intermediate term bond fund, which is VBILX. And then for gold, you can look at, if you want to look at an ETF for gold, Spider has Gold shares ETF, which is GLB.

And then for commodities, Investco's DB, commodity index ETF, DBC, is one that you can also look at if you're looking at the index fund and ETF versions. Now, why is this constructed this way? This is what a lot of people want to know. And so he designed this portfolio based on the idea that the economy moves in four different major environments. One, is the economy has a growth environment, which means stocks do well. Two, is it has a recessionary environment, which means bonds and gold do well.

Three, it has an inflationary environment, which means commodities in gold do well. And then deflation means bonds perform well. Now, since nobody can predict the future, this portfolio aims to thrive in any environment by balancing all of these assets. So stocks, 30% drive the growth. The bonds, 55% stabilized the portfolio during recessions and the golden commodities protect against inflation. That is the entire goal of this portfolio to be able to protect against those four different growth, recession, inflation, and deflation. Those four different economic environments. And so that is what he's trying to do.

Now, why might this be better than other options for some people? A, extremely low volatility, as we will see here in a second, but this is designed to minimize losses and downturns. Even during major stock market crashes, it remains relatively stable. Now, it also performs well in all economic conditions. So unlike 100% stock portfolios, which can drop 40% in bear markets, this portfolio typically falls much less during downturns. And there's less emotional stress for investors because it doesn't experience extreme

swings, and so investors are less likely to panic and sell at the wrong time. Now, here are some potential drawbacks for you, is the lower long-term returns than stock-heavy portfolios. And so that is something you definitely want to see, which we'll talk about the returns here in a second. It is probably too conservative for a lot of young investors because you have 30-plus years before retirement. You want to make sure that you are getting that growth when the going's good. You know what I'm talking about. And then golden commodities are volatile. So golden commodities, the hard part about those is they don't have an intrinsic value, that they have nothing backing them. All they have is the willingness of somebody else to pay for them.

So if you hand somebody a bar of gold, there's no like balance sheet for that bar of gold. You only can sell it for what somebody is willing to pay for it. And so that's the same thing with Bitcoin. That's the same thing with commodities, those types of things and those types of investments don't have, you know, financials backing them. And there's no intrinsic value. So you just want to make sure that you understand how that works to. Now, the performance over the last 30 years, what we all want to know. From 1994 to 2024, the annualized return, for this portfolio is 7.5% per year. Not terrible. Pretty good average rate of return, which is why for a lot of times when we're prepping for retirement, we're trying to put 7% returns, even though most

likely that's pretty conservative. Now, $10,000 invested in 1994 grew to about a little over $90,000 in 2024. And this is the lowest return so far, but it comes with far less volatility and then stock-heavy portfolios. So let's look at its best year. Let's look at its worst year, okay? Because this is important to understand. And you're going to be surprised at the worst year at a second, I think. But the best year is 27%. And that was in 1995 when the stock market surged. Its worst year, though, was 2002 where it went down 21% when the Federal Reserve raised interest rates and bond-heavy portfolios got hit hard. So it actually did worse than the Couch Potato portfolio, which only lost 16% that year. And this actually did worse. And the Couch Potatoes a lot easier to manage.

The tech boom lagging behind 100% stock portfolios because of the heavy bond allocation. So during the tech boom with the 90s in the 2000, it was way behind those stock portfolios. But during the dot-com crash, it only lost about 10%. So it lost the least amount during the dot-com crash, where the couch potato portfolio lost 12%. This only lost 10%. And then during the 2008 financial crisis, stocks crashed 37%, but the all-season portfolio lost only about 14%, which is very, very good. And so losing 14% during that crash shows you that it will weather a lot of different things,

especially that you doesn't. It's actually less of a loss than what the Couch Potato portfolio did. So it actually protects you more during those big, big losses than what that did. Now, stocks dropped 30% in March of the COVID-19 crash in 2020, but this portfolio only lost around 5%. That is fascinating to me that it will really hedge against downsides for you if you are looking to hedge against the portfolio going down. So 7.5% per year is what it's averaged and gained as a rate of return, but it also hedges against

downsides. So the biggest risk is you get lower growth in stock heavy portfolios and inflation and rising interest rates can also hurt bonds. And this is a very heavy bond portfolio. But it is great for investors who prioritize stability over growth. If you care about stability for the long run, if you are close to retirement, maybe that's for you. Retirees or conservative investors who want less risk in downturns, this may be a good portfolio

for you to consider or people who get nervous during stock market crashes, then something like this is going to help you a lot because it's not going to dip as much as a heavy stock portfolio. Now, it is not ideal for young investors who want higher long-term returns unless they have really large amounts of money that they're putting away or aggressive investors who can handle volatility for better long-term growth or people who don't believe in holding gold or commodities. This is not for you as well. And so the all-season portfolio is one of the safest long-term investment strategies that we have on this list because of how it can avoid major market crashes and it is ideal for conservative

investors. And so its returns are lower than stock heavy portfolios, making it less ideal for young investors focused on wealth accumulation unless they have a low risk tolerance. Then that means they probably want to make sure they protect against some of this stuff. Next, let's get into the Yale Endowment portfolio. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be. That's where Indeed comes in. When it comes to hiring, Indeed is all you need. Instead of struggling to get your job post noticed, Indeed's sponsor jobs help you stand out and hire faster. Your post jumps up to the top

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grew from $1 billion to $31 billion, making it one of the most successful institutional portfolios in history. His approach was unique because he diversified. He diversified heavily beyond just stocks and bonds, incorporating alternative assets like private equity, hedge funds, and real estate. So this is going to be the first time we are going to see some additional different types of funds in this portfolio. Now, we're going to create a retail investor version because for you, you can't do private equity stuff. And so there's not going to be things that you can do right away. But this is the retail investor version that he created, that it will show you, you know, how you could do this in the stock market, basically.

And so the asset allocation for the retail investor inversion is 30. percent U.S. stocks, 15 percent international stocks for exposure to global markets, 5 percent emerging markets for high growth potential in developing countries. So if you've never heard of emerging markets, those are countries that are really growing quickly and rapidly. They are much higher risk, but they can also grow really quickly. 30 percent in bonds for intermediate terms, so for stability and fixed income. And then 20 percent in real estate investment trusts, which is very interesting. So real estate diversification. Now common funds for each of these for the U.S. stocks is going to be something like VTSAX or FSKAX.

Those are the ones we've been talking about this whole time. International stocks would be Vanguard's Total International Fund, which is VTIAX, and Fidelity's international fund is FSPSX. Emerging Markets can be Vanguard's emerging markets ETF or VWO, which is a great one. Fidelity's got an emerging market index fund, which is FPADX. And then for bonds, for the intermediate term treasury ETF, that's VGIT at Vanguard. And then it is I shares U.S. aggregate bond ETF or AGG is going to be the I shares. And then the REITs, we have Vanguard's real estate ETF or VNQ.

That is one that I own. And then Schwab's US REITEF is SCH. And so why is this constructed this way? Well, Swenson believe that institutions and individual investors should not rely solely on stocks and bonds. And so he built his portfolio on broad diversification. Instead of being 100% stocks and bonds, it adds reits and emerging markets to kind of diversify your portfolio. Now, if you don't want to

add reits and you're like a real estate investor, for example, that is also something you can do is you can go invest in rental properties or something like that with a portion of your portfolio. Alternative investments for stability would be reits like real estate investment trusts, which provide passive income and perform differently than stocks do, and then emerging markets over high growth potential and exposure to economies outside the U.S. and Europe. And he also is trying to avoid high fee actively management. So he believed in low-cost index funds. and preferred passive investing over expensive mutual funds. Now, why this might be better than other options.

This is a more diversified than a typical stock portfolio. So instead of just stocks and bonds, this includes real estate and emerging markets, and so it gives you more diversification there. It does have higher long-term growth potential than a traditional 60-40 portfolio, and REITs in emerging markets have historically provided higher returns than bonds, and has less volatility than 100% stock portfolio because bonds and reeds help cushion during market downturns. Now the drawbacks are it's more complex in like a simple three fund portfolio or a Warren Buffett portfolio or a couch potato portfolio for that matter. In emerging markets are

more volatile so they can underperform during recessions, which is going to be tough. And then bonds limit growth potential with that 30% bond allocation. But that's why he has some more risky stuff with the bond allocation put together. That was his thought process. Now, what is the performance over the last 30 years? It's right around average of 8% per year with 10,000 invested growing to a little over $100,000 in 2004, and it outperforms traditional 60-40 portfolios, but underperforms all stock portfolios over long periods of time. So this does not perform better than most of these stock portfolios. So its best year was 26% in 2003 when emerging markets and REITs surged. Its worst year was 2008, like a lot of these other ones, which it was 24% in 2008.

Not terrible, though, compared to some of these other ones. And Reese crashed over 40% because, as you know, there was a huge real estate issue in 2008. During the tech boom, it lagged behind 100% stock portfolio, so it did not do as well as stocks did. And during the dot com crash, stocks fell, but bonds and reeds soft in the blow. And then during the COVID-19 crash, stocks and reach crash, but bonds help limit losses. So its biggest risk is that reits are highly sensitive to interest rate changes. That is a big, big deal for a lot of people, which is why I don't own a ton of reits because interest rates can shift those sometimes. and so rising rates can hurt real estate investments.

And then emerging markets can be volatile and they can have more volatility in some of these other options that we're talking about here. So that is the other side of this coin for sure. So who should use this strategy? It's great for long-term investors who want a diversified portfolio and those who want exposure to real estate and emerging markets or investors looking for a mix of growth and stability. If that's you and you're looking for growth and stability, maybe that's an option for you. but people who want a simpler, low-maintenance portfolio, this is not for you, or investors who don't believe in international or re-investing, this is not for you at all.

And anyone who needs liquidity, reits in emerging markets can be highly volatile, and it is not great for liquidity. So this is something definitely to look into. If you got an endowment fund or something like that, that's fine, but not the best portfolio probably for the individual investor out there unless you really think this can do better in the future. So do your own research on that one, but that is my quick two cents by look at it. at this one. So let's get into number nine, which is going to be the coffee house portfolio. All right, up next. We have Bill Schultes's coffee house portfolio. Now, the coffee house portfolio was created by Bill Schultes, who is a financial advisor and author of the coffee house investor.

Now, it is designed to be a diversified and passive portfolio that balances growth and instability. So unlike the 6040 portfolio, which splits investments between stocks and bonds, the coffee house portfolio takes a more diversified approach by spreading stocks across multiple categories. So if you look at a typical 6040 portfolio, maybe you'll have 60% in a S&P 500 index fund and maybe a little international fund over there. And then 40% is going to be in bonds. Well, this kind of breaks it down even further and makes it to where it is honestly a little more complicated. But he has an asset allocation of 6040. It's just a little more complicated and broke down. So 10% goes to large cap stocks or the S&P 500. 10% goes to,

goes to large cap value stocks, which is high quality companies trading at lower valuations. Then it goes 10% to small cap stocks, which is companies with high growth potential. Then 10% small cap value stocks, which are smaller companies that may be undervalued. Then we have 10% in international stocks, which are exposure to global markets, then 10% to REITs and 40% to bonds. So here are some options here. For the large cap stocks, we have BFIAX and Fidelity's 500 index fund, with VFX A-I-X. For the large-cap value,

Vanguard has a value index fund, which is V-V-V-I-A-X, or you can look at Fidelity's large-cap value index fund, which is F-L-C-O-X. Now, for small-cap stocks, Vanguard has a small-cap index fund, which is V-S-Max, and Fidelity has a small-cap index fund,

which is F-W-S-N-X. And then there's some small-cap value funds, like V-S-I-A-X and I-Shars, which has I-W-N. And then for Internet, international stocks. We've talked about this a ton of times already, but VT-I-A-X, and then Fidelity has the international fund of V-S-P-S-P-S-X. And then for REITs, you've got VNQ, which is Vanguard's REITF, or Schwab has SC-H-H. And then for V-B-T-L-X for the total bond market index fund and for the Fidelity U.S. bond index fund, it's F-X-N-A-X. And so that is how you can kind of look at some of these funds.

That's a lot of funds, though. I mean, we are looking at seven different funds. in one portfolio just to get to a 60-40 allocation. That, to me, is where you get a little more overcomplicated, but it's not as complicated as the next one we'll get into here in a second. But let's just talk through this a little bit more. So why is this constructed this way? So he believes that the coffee house portfolio is based on three key principles. One is broad diversification across market segments. And so instead of just holding U.S. large cap stocks, he wanted to add in small cap stocks, he wanted to add in value stocks, international funds, reets, all these different things, which are going to provide additional diversification and

exposure to other markets. And then he also has lower risk with bonds, with that 40% going towards bonds. And so that is going to be one that a lot of investors may be able to benefit from as well if you are looking again to hedge against the downside. And so that's what that's for bonds as a hedge against that downside allocation. And then he states that he's looking for a simple long-term approach. I would argue this is not simple, but that's what he states. The portfolio is passive, there is no market timing or stock picking, so that part, sure. And investors rebounds once a year to stay invested for decades. Now, why this may be better option for some people, it is more diversified than a 6040 portfolio. So if you're looking for additional

diversification, that may be for you. It has lower volatility than 100% stock portfolios. And then it is simple and easy to manage in comparison to maybe stock picking, like individual stock picking. This is a little easier than that. Now, drawbacks are that it has lower returns than 100% stock portfolios and the 40% bond allocation limits the upside potential to that. Secondarily, though, it requires multiple funds. This is a seven fund portfolio, which is just tough, in my opinion, to manage to rebalance all of that different stuff. And then international stocks and REITs can also be volatile, which makes it a little more volatile in some sectors. If one sector is doing poorly, it could pull down a portion of your portfolio, depending on what's

going on. Now, what's the performance over the course of the last 30 years. The annualized return is 8% per year. So $10,000 invested grew to a little over $100,000 over the course of the last 30 years. And it performed actually slightly better than a 60,40 portfolio, but less than all stock portfolios. Now, its best year was 1995, where it had a 28% gain. Its worst year was 2008, where it only had a 20% loss. So it hedged against those losses, but still had a great gain in the big gain years. But it lagged behind during the tech boom and during the dot-com crash, it also had much less than the S&P 500 because of its bonds and small cap diversification. And then during the 2008 financial crisis, stocks dropped 37%, but this portfolio

only lost 20%. So it's a great hedge against some of that volatility. And then its biggest risk is international stocks and REITs are going to add a lot of volatility. And then bonds can lag in high inflation environments again, same risks as some of these other ones. And so it's great for investors who want maybe own more funds but have a diversified portfolio and who want more growth than a 6040 portfolio can provide. This may be one for you. And then long-term investors who don't want to stress about that market timing that may be what for you. But it's not ideal for investors who want that maximum growth or people who want the simplest portfolio possible. This is not simple whatsoever. And so it's a solid middle ground strategy. Maybe you like to own different funds.

You like to look into funds a little more and get a little more complicated than more power to there's nothing wrong with that. Some people love that stuff. I know a lot of our listeners do. And so that may be one for you if you are looking for that. So that is going to be it for that one. And then we are going to get into the last one next. All right. The last one is Paul Merriman's ultimate buy and hold portfolio. Now, Paul has been on this podcast and he was a great interview. You got to check that one out. He is absolutely amazing to listen, talk about investments. but he has by far the most complicated portfolio out of anybody on this list, and we're going to get into it here in a second. So he calls this the ultimate buy and hold portfolio. And who Paul is,

Paul is a financial educator and author known for his expertise in diversified long-term investing. So Paul is a staple in the long-term investing community, and he is a great, great person overall. Now, his portfolio is designed to maximize returns by spreading investments across multiple asset classes like most of these are, with an, emphasis on small cap and value stocks. So if you've ever heard us talk when we talk to Paul, he really dove deep into why he loves small cap stock. So if you're someone who's like, well, why would I add small cap to my portfolio? Make sure you listen to that episode because I think it's really valuable to listen to Paul talk about that. Now, this strategy expands on the three

fund and coffee house portfolios by adding even more small cap value in international stocks to increase diversification and returns. Now, this is a stock 80% bond, 20% split, but these stock allocation is really broken down. In fact, we have a ton of funds here, 10 different stock funds with one and then the bonds as well. So let's look at this. All right. Six percent goes to U.S. large cap blend, meaning the S&P 500. Six percent to U.S. large cap value stocks, which is high-quality companies trading at lower valuations. Six percent to U.S. small-cap blend, which is growth focused on smaller companies. 6% to U.S. small cap value.

So the highest returning asset class historically. 6% to international large cap blend. 6% to international large cap value. 6% to international small cap blend, which is global small cap stocks. And 6% to international small cap value, which is global small cap value stocks. 6% to emerging markets, which is high growth economies like China, India, and Brazil. And 6% to REITs, which gives you the market. real estate exposure and then 20% of bonds. 20% of bonds. Thank you for not breaking those bonds down,

Paul. That would be even more funds that we would have to own. All right. So the common funds here are going to be first is the large cap stocks. You can look at like the S&P 500 index funds for the US large cap value. Vanguard has a value index fund or VVIAX. For a U.S. small cap blend, Vanguard has a small cap index fund, which is called VS Max. For the small cap value, Vanguard has VVIAX. For the small cap value, Vanguard has Vs iAX or iShare says IWN. And for the international large cap, you can look at something like to develop market index fund or VTMGX or FSPX. And Paul writes about the funds he actually likes a lot too in his writing.

So you can also look at those. The international small cap value. Vanguard has an FTSE, all world U.S. small cap ETF or VSX. And that is an interesting one. And then emerging markets, Vanguard has the emerging market stock index. fund, which is VEM-A-X, and I-Shares has one that is E-E-M.

And then for REITs, we have Vanguard's V-N-Q, and Schwab has S-E-H. And then for B-B-T-L-X is Vanguard's and F-X's Fidelity. Now, here's why it's constructed this way. So his ultimate buy-and-hold portfolio follows three core principles. One is diversification across all stock sizes, styles, and region. So his goal is to get as diversified as you possible. can't. So instead of holding just a total market or S&P 500 fund, this portfolio spreads risk across all large cap and small cap value funds. Now, the small cap and value funds have historically

outperform the S&P 500 over long periods, which is why he does this. Now, for long-term growth volatility, he has a 20% bond allocation that stabilizes returns while allowing for strong stock-driven growth and reeds in emerging markets add alternative asset exposure, which is why he has those in there as well. Lastly, he loves small cap and value stocks, and he talks more about that in that episode, if you haven't heard it. But we're going to go through how this performed over the course the last couple of years. But why might this be better than other portfolios? If you want a more diversified portfolio than any other portfolio on this list, this is definitely

going to be the one. If you want higher expected returns than traditional stock bond portfolios, you're going to see this is actually performed very well. And if you want better risk management than 100% stock portfolios, then this is going to help you manage that risk because that 20% bonds helps with the, that volatility. Now, the small cap was also going to give you that as higher expected returns because the small cap and value can tilt and enhance long-term returns. Now, some drawbacks. This is a complex as a lot of people are willing to get because there is a lot of, you got to track multiple

funds and you got to rebalance regularly. And then lower returns than 100% stock portfolios in bull markets because that bond allocation. And then international and small cap stocks can underperform at times. And so that is some of the drawbacks. Now, let's look at the performance. the last 30 years. Annualized return is 9% per year. Very good on this list. $10,000 invested in 1994, grew to $125,000 in 202024,

and it outperforms a traditional 6040 and three fund portfolios, but is more volatile than simpler strategies. Now, how it performs in good and bad times. Its best year was 2003, with a 30% increase because small caps and emerging markets surged and it boosts the portfolio of performance.

Its worst year was 2008, with a 25% loss. And so that is the stock-heavy allocation meant a bigger drop in bond-heavy portfolios, but less than all stock strategies. And then the tech boom, it performed better than the S&P 500 only portfolio due to the small-cap performance.

So like if you have a small company that's surging, small caps are going to do really well. And then during the dot-com crash, it also lost less than a pure S&P 500 portfolio thanks to small cap and bond allocations. During the COVID-19 crash, it dropped 25% in March 2020. but emerging markets and small caps

lagged early but outperform later. And the biggest risk, it has more complexity and more management. If you like managing your portfolio, maybe this is for you, and it requires monitoring those multiple funds, but it also has higher volatility than simpler portfolios.

And so here's the verdict. Who is this for? Investors looking for maximum diversification is one. It is for people willing to manage multiple funds and optimize that long-term growth and those who believe that small cap and value stock performance is going to be a big, big deal.

It is not ideal for investment, investors who want simple, low maintenance strategy. For a lot of you, it's not going to be this one. People who want to track multiple funds and rebalance often. And then conservative investors who handle higher short-term volatility, this is not for you as well. So the ultimate buy and hold portfolio is one of the most diversified strategies by far, but it is a beast to manage overall some of these simpler fund portfolios. And its complexity is very difficult. And so that is going to be the 10 portfolios that we talk about in these two episodes. I am so we dug in the weeds in this one, and I hope you stuck with me here until the end.

If you want to know which one perform the best is actually number one. So number one with the 100% VTSAX actually performed the best, and Warren Buffett's portfolio was a close second. And those are the two highest performing ones because they have that high stock allocation. But it depends on your risk tolerance again. It depends on where you are in life. And it depends on what you want to do with your money going forward. Before you invest in any of these, you need to do your own research.

and make sure you talk to a professional. Listen, thank you guys again for listening to this podcast episode. I truly appreciate each and every single one of you. If you're getting value of this episode, consider sharing it with a family member or a friend and leave that five-star rating and review. I cannot thank you guys enough for leaving those five-star ratings and reviews.

If you are interested in learning how to invest in index funds in ETFs, we have a course called Index Fund Pro that teaches you exactly how to do that. And so make sure that you check that out as well. Again, thank you guys so much for listening to this. episode and we will see you on the next episode. When a country's productivity cycle is broken, people feel it in their paychecks, their communities, their futures.

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