Portfolio

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Time for my annual post updating statistics for the various portfolios that I track. All portfolio stats were gathered using  AllocateSmartly P123 , Morningstar and the wonder that is Excel. Obviously, there are many more portfolio options out there. This is just a sampling of three main portfolio varieties; buy and hold, TAA (tactical asset allocation) and quant portfolios. See my Portfolios page for a description of many of these portfolios. Also, go to  AllocateSmartly  for more on all kinds of other TAA portfolios.

One new thing I’ve done for this year is to average the performance of all the buy and hold and TAA portfolios that I track. Many investors get caught up in the differences between various individual TAA and/or buy and hold portfolios and loose track of the forest, the more important first choice of TAA, buy and hold, or both. You’ll find those performance numbers highlighted in the tables below, under ‘Avg TAA’ and ‘Avg B&H’.

This post updates the portfolio statistics, through 2018, for all the various portfolios I track that I have data for going back to 1973. It is not comprehensive by any means but contains a good sample of various diversified global buy and hold portfolios, tactical asset allocation portfolios, and quant portfolios, as well as the popular benchmarks, in particular the 60/40 portfolio for US investors and a more global, better diversified version, GAA. Last year’s post is  here  and the portfolios are defined on the portfolios  page . I’ll present the comparison of the portfolios in several ways with my favorite being risk adjusted returns. On to the data. The table below sorts the portfolios by Sharpe Ratio, i.e. risk-adjusted returns, from 1973 to 2018, the longest period.

As the table shows, it is pretty clear what TAA offers. Higher risk-adjusted returns than buy and hold, which greatly helps investor behavior. The secondary impact of these higher risk-adjusted returns, particularly for investors in the portfolio withdrawal phase of their lives, are higher SWRs (safe withdrawal rates) in retirement (see column marked ‘1966 SWRs’ in the tables). Now, let’s look at returns. First, over the longest period of time.

While there is quite a lot of variety in individual portfolio returns, TAA in general over the long term has also delivered higher returns than buy and hold. That is also true over the last 20 years as the next table shows.

Simple right? Not really. The market will always make these decisions hard, especially in the short term. Take a look at the performance differences over the last 10 yrs and 5 yrs. In both of these recent periods, buy and hold has outperformed TAA. In very strong bull markets, in particular time periods not including a significant recessionary period, buy and hold CAN outperform TAA. It is not always the case. In the 1982 to 2000 bull market, TAA outperformed buy and hold but it has higher odds of happening. And that is what we’ve seen in the last 10 years, 2009 to 2018, buy and hold outperforming TAA. This is why many advisors recommend maintaining an allocation to buy and hold. No FOMO (fear of missing out). I think for investors who are not in the retirement phase of their life, that is not a bad option if they can tolerate the higher drawdowns associated with buy and hold.

That about it for this year’s roundup. I’ll be following this up with a deeper dive into the TAA performance differenced over the last 20 years and some important sub periods. There’s a lot of data to chew on in this post but I think it nicely frames some of the major decision criteria between buy and hold and TAA portfolios.

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5 thoughts on “ Comparing Portfolio Performance (1973 To 2018)

  1. Great stuff, Paul.

    My favorite stat is the safe withdrawal rate and I’d like to learn how to build that in excel or Javascript. Would you have any recommendations of where to start or a template you worked off of to run that analysis?

    Thanks!

    1. Hey Tyler,

      A few years ago I wrote about how to calculate the basic SWR. Take a look at this post . I do it in excel and macros. It takes a while to setup. I’m sure it would be much easier in a programming language.

      Paul

  2. Hi Paul,

    Following your blog from Germany for a while. Thanks for the great work.

    What is the DM-Comp portfolio? Cannot find on the portfolio page.

    Thanks

    David

    1. Hi David, thank you. The DM-COMP portfolio is one of the portfolios in my Economic Pulse Newsletter.

      Paul

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