Model Portfolios
Click here for a summary
of all of the model portfolios
These
"Model" portfolios should be used as a relative
guide to measure the risk/return characteristics of
different combinations of asset classes. The asset
classes and combinations of asset classes that are
right for you depends on your personal investment
objectives. We strongly suggest you consult an advisor
for guidance.
Allocations
are as follows:
- 25%,
50%, 65%, 75%, and 100% Stocks.
- 50%,
60%, and 70% U.S.stocks (of stock
total).
- 50%Growth
& 50% Value, and 100% Value.
- 60%
large company, 40% small company (U.S.) and 100%
large company (Int'l).
We show
year-to-year returns to give investors an idea of
yearly volatility and short-tern downside risk. We
also show "rolling five-year" returns (e.g.
1973-1977) to show what patience with
a diversified portfolio will achieve.
We start
the series at 1973 in order to dampen the numbers
with the severe, across-the-board bear market of 1973-1974.
Beware of anyone who shows asset class numbers
starting in 1975!
Foreign
(or "international") small company stocks,
small company value stocks, and emerging markets were
not included for lack of long term returns data. However,
investors should consider adding these higher return/higher
risk asset classes depending on their investment objectives.
In this case, consider taking one-half of the international
stock allocation and investing two-thirds of it in
international small and one-third in emerging markets.
Those asset classes could be further divided among
growth and value.
Due
to longer returns series back to 1973, the DFA Five-Year
Government Bond index was used as a proxy for Global
Fixed Income and the Morgan Stanley EAFE index was
used for 1973 and 1974 as a proxy for International
Large Value Stocks.
By law,
advisors must state something like the following:
"Past performance is no guarantee of future
returns. This is especially true of model portfolios,
which are not subject to specific economic and market
factors."
We'll
be more blunt: If you think you will realize these
same returns over the next 25 years, especially factoring
in advisor fees, fund expenses, and transaction costs,
you may have an unpleasant surprise coming!
Enjoy!
Index Funds Staff
©1999 IndexFunds.com
