Gone Fishin is one of the most popular lazy portfolios. This article takes you through the world of lazy portfolios through the lens of Gone Fishin’.
Whether you are a newbie or an established investor, this article answers most of your questions on lazy portfolios, particularly the Gone Fishin’ Portfolios.
I am confident you will be more informed and better positioned to make key investment decisions in the end. So, without wasting time, let’s get to it!
It’s a long enjoyable discussion. But if you are in a hurry, you can just skim through the key takeaways below:
- Lazy portfolios are designed to run favorably and automatically for as long as possible.
- Gone Fishin’ is one of the most popular lazy portfolios in the current market, curated by Alexander Green.
- Gone Fishin’ combines different stock types, most of which have potential solid returns with considerable resistance to market changes.
- Despite its minimal drawdown risk, the portfolio still has quite a bit of risk investors must consider.
- Investors can duplicate or set up their Gone Fishin’ portfolios using certain types of ETFs.
- Ensure rebalancing if you adopt the Gone Fishin’ strategy to avoid excessive risk or minimal asset exposure.
The Lazy Portfolio Concept Explained
An excellent premise to understand Alexander’s Green’s Gone Fishin’ Portfolio is knowing what lazy portfolios are all about. As the name suggests, a lazy portfolio is a passive investment technique that requires minimal efforts or inputs from the investor after inception.
These portfolios often comprise investments that run automatically and strategically. Therefore, the changing marketing conditions only affect them minimally.
The word “lazy” in the title doesn’t necessarily mean investors who adopt these types of portfolios are lazy. Instead, it indicates that only minimal efforts go into managing such portfolios successfully.
Considering it is a long-term strategy, investors only have to set it and forget it. And a well-designed lazy portfolio will most likely fetch investors consistent returns, irrespective of the market conditions.
To set up a lazy portfolio, start by deciding what you want to invest in, then the frequency of investment and the level of financial commitment. After that, routine rebalancing may be necessary to harmonize your asset allocation, risk tolerance, and investment goals.
Suppose you are an investor with a longer window with little or no interest in active day trading. In that case, you can switch to lazy portfolios to position yourself for investment returns with minimal input and without the help of a portfolio manager.
Gone Fishin Portfolio as a Lazy Portfolio
Having understood what lazy portfolios are all about, let’s move on to take on a practical example – the Gone Fishin’ Portfolio. The Gone Fishin’ Portfolio was created by Alexander Green, a renowned author and the Chief Investment Strategist of The Oxford Club. Per the club’s official website, the club’s mission is “to help members – investors and entrepreneurs – grow and protect their wealth.
Green has authored a few books on investments and wealth, including one that talks about his Gone Fishin’ Portfolio extensively – “The Gone Fishin’ Portfolio: Get Wise, Get Wealthy…and Get On With Your Life.” Others include “The Secret of Shelter Island: Money and What Matters,” An Embarrassment of Riches: Tapping Into the World’s Greatest Legacy of Wealth,” and “Beyond Wealth: The Road Map to a Rich Life.”
Since its inception in 2003, the portfolio has been a widely-accepted conservative investment strategy. The Gone Fishin’ portfolio relies on a battle-tested efficient market hypothesis pulled from the most advanced money management principles. These principles were the ideas of Harry Markowitz, a Nobel Laureate Winner who is also popularly dubbed as the “father of Modern Portfolio Theory.”
Markowitz’s breakthrough came from his demonstration that it is possible to maximize the risk-adjusted return of any portfolio, using the optimal asset allocation as an indication. So, opting for diversification when allocating assets can mitigate risks rather than go all-in into one or two stocks or index funds where the risk-adjusted return is minimal.
Understandably, most investors guess what assets will bring impressive returns and when. While that seems to work, Green believes there is a better way: to diversify into multiple investment types and options to minimize risk and drawdowns at the portfolio level.
Contrary to popular claims, the portfolio is easy to understand and replicate. That said, it is not the most straightforward lazy portfolio out there. But the Gone Fishin’ investment portfolio is still easy to maintain, as expected of any excellent lazy portfolio. After a successful setup, it requires only 20-30 minutes on average to maintain and rebalance annually. But this minimal effort evidently translates to a considerable difference in portfolio maintenance over time.
Green’s Gone Fishin’ Portfolio thrives primarily on diversification. Therefore, he designed it such that the assets spread across a different range of asset classes, with each of these classes offering multiple opportunities. However, getting the best in terms of returns from this portfolio requires time. That is why Green advises that only long-term investors who have a more important use for their time should adopt this portfolio.
Gone Fishin Portfolio: Composition and Historical Performance
Investing in this portfolio means spreading your funds across ten different asset classes. We have mentioned diversification as an essential ingredient in preparing the Gone Fishin’ Portfolio. Therefore, it is only normal that the portfolio’s composition reflects an exciting level of diversification.
Gone Fishin’ Portfolio Composition
I have identified the ten asset classes in the Gone Fishin’ portfolio below. We can broadly group them into stocks (65%), fixed income funds (30%), and 5% commodities.
Let’s start with the stocks;
1. 15% U.S. Stocks
Green dedicates 15% of the portfolio to U.S. stocks due to the unequaled size of the U.S. economy and its juicy opportunities. This gives investors a good reach of this side of the market.
2. 15% U.S. Small-Cap Stocks
Small-cap domestic stocks offer diversified coverage across different sectors while focusing on value and growth stocks. As a result, these stocks also have the potential for impressive returns.
3. 10% Emerging Markets Stocks
As the name suggests, emerging markets are regions with developing economies but great growth potential. They include stocks of companies in countries like South Africa, Brazil, and China.
4. 10% European Stocks
The geopolitical powers of Europe make them a vast economy. Investors can tap into the numerous foreign investment opportunities available in many developed markets.
5. 10% Pacific Stocks
Pacific stocks are stocks of companies localized in the pacific area. These nations are close to becoming large economies. Investors in this portfolio can access the great opportunities that abound from such transitions.
Then the Fixed Income Funds include;
6. 10% High-Yield Corporate Bonds
A proper safe-haven portfolio must include bonds. High-yield corporate bonds are relatively safe, giving investors additional stability.
7. 10% Short-Term Investment-Grade Bonds
These bond types are generally similar to cash. However, it gives the portfolio a considerable level of liquidity and stability.
8. 10% Treasury-Inflation-Protected Securities (TIPS)
These funds serve as a hedge against inflation. They come as securities from the U.S. Treasury and resonate with the portfolio’s goal of safe and consistent returns.
Finally, the Commodities;
9. 5% Precious Metals
Precious metals primarily include platinum, palladium, gold, and silver. So, precious metal funds are those that invest in these gems. Experts see them as a means to hedge against the stock market drawdowns.
10. 5% Real Estate Investment Trusts (REITs)
This is another safe-haven part of the Gone Fishin’ portfolio. It offers a breath of fresh air outside the corporate world by helping investors own some stake in real estate.
Away from the composition, it is essential to know how well (or otherwise) the Gone Fishin’ portfolio has performed over time.
Gone Fishin’ Portfolio Historical Performance
Generally, we can describe the Gone Fishin’ portfolio performance as impressive, based on its annual returns. For a portfolio with a 0.14% expense ratio, the Alexander Green Gone Fishing Portfolio has delivered 7.38% in compounded annual returns over the last ten years, with a 9.27% standard deviation. If we extend the deadline to 25 years, the portfolio has obtained a 7.63% compound annual return, while the standard deviation stands at 12.23%.
In terms of capital growth, if you had invested $1,000 in the Gone Fishin’ Portfolio in 1997, your investment would be worth around $6284.23. This translates to 7.63% annualized returns and a total return of 528.42% over 25 years. If we factor in inflation, we would have an Inflated Adjusted Capital of $3558.84, the same as 5.21% annualized return or 255.8% total return over the same period.
The maximum drawdown obtained by this portfolio in the last 25 years is -43.02%, which was recorded between November 2007 and February 2009. The maximum drawdown in the past year is -4.91%, with the returns standing at 3.27% within the same timeframe. The longest it took the Gone Fishin portfolio to recover from a drawdown is 22 months, which is for the 16-month drawdown period between November 2007 and February 2009.
Gone Fishin Portfolio vs. Stock Market (S&P 500)
Still on the Gone Fishin Portfolio assessment, let’s look at how it compares with other investment strategies, especially the stock market. We have adopted the S&P 500 for this comparison for obvious reasons. The Standard & Poor’s 500 Index comprises the 500 leading public traded companies in the United States. Therefore, it is a reliable measure of how top American equities perform, and by extension, the entire stock market.
Pitching the Gone Fishin’ Portfolio against the S&P 500, there is nothing much to separate both in terms of performance. However, we will look at it from different timeframes, starting with the two-decade period. If you had invested $10,000 in both Gone Fishin’ and S&P 500 in 2001, you would have $43,599 and $41,930, respectively, as your final balance at the end of 2021. That translates to a 0.93 and 1.00 market U.S. market correlation within the same period.
Furthermore, Gone Fishin’ returned -31.70% in its worst year, while S&P 500 managed -37.02%. Therefore, the maximum drawdown for both options within this timeframe is -43.84% and -50.97% for Gone Fishin’ and S&P 500, respectively.
How about when we shorten the timeframe to ten years? This is where things get interesting. If you had invested $10,000 in both portfolios at the start of 2010, you would have $23,506 and $42,292 as final balances for Gone Fishin’ and S&P 500, respectively. The maximum drawdown within these ten years is -18.27% for Gone Fishin’ and -19.63% for S&P 500 – both performances are pretty close.
Alexander Green and the vast majority of Gone Fishin Portfolio believers have mentioned how it is a better performer than the stock market, especially the S&P 500. But the 10-year period analyses paint a different picture entirely. The S&P 500 is apparently the better performer, even when we adopt the risk-adjusted returns as the metrics over annualized returns.
There is really not much difference between both options regarding the risks involved. Both are still minimally risky, as indicated by their volatility and drawdown metrics. That said, you should not have to worry about this if you are in it for the long term. However, if you are highly risk-averse, you may want to consider other less risky and less volatile lazy portfolios out there.
To better shape your understanding, the next section talks about the Gone Fishin Portfolio’s advantages and disadvantages.
Gone Fishin Portfolio: Pros and Cons
Every investor knows there is no perfect portfolio. If there were, experts would not have to spend tons of hours comparing options to see what works best for different classes of investors. Unfortunately, the Gone Fishin Portfolio is not an exception. Despite being a lazy portfolio that is easy to set up and manage with no investment director, it has a few downsides.
Let’s start with the positives.
Gone Fishin’ Portfolio – The Pros
1. Saves time and effort.
Investors, especially the not-so-expert ones, spend several hours analyzing the market every day. That is quite understandable, considering everyone wants their investment to perform excellently. However, with lazy portfolios like Gone Fishin’, you can just set up your trades and forget about it.
This investment option is ideal for people who have little or no time to evaluate market data or read tons of articles from financial advisors. The process is a simple DIY – you will be done in no time. The best part? You can rest assured of successful investments despite investing minimal time and effort.
Another benefit of setting and forgetting your lazy portfolio is that you avoid the aggressiveness of investing, which often harms the portfolio in the long run. There is also the delegation risk, which most likely happens when you ask someone else to set up or manage your portfolio for you. This ensures that no one mismanages your money and you are not paying inflated management fees.
You also get to worry less about economic forecasting and market timing. Regardless of the market conditions, you can trust your portfolio to weather it effectively.
2. Offers impressive annual returns.
We have touched on the performance of this portfolio in previous sections of this article. All information so far points to the fact that it is a relatively impressive performer with strong annual returns. For instance, this portfolio’s Compound Annual Growth Rate (CAGR) is over 7.5%. The S&P 500 only recorded 7.3% within the same period to better appreciate this.
This is not the same as saying the Gone Fishin’ portfolio is a mind-blowing performer, especially when comparing it to some benchmarks. However, for a portfolio on autopilot with minimal or no efforts, it offers decent returns and even better returns for long-term investors.
3. Diversification is impressive.
Diversification is key to the success of any long-term portfolio. Besides the fact that Alexander Green is big on diversification as an effective risk management tool, every serious investor out there knows not to place all their eggs in a basket.
The Gone Fishing Portfolio spreads across and within a wide range of asset class in terms of diversification. Green has strategically chosen these groups of assets, from domestic stocks to international stocks, bonds, and securities.
If you are putting your money into the Gone Fishin’ Portfolio, you have one less thing to worry about – and that is diversification. Therefore, it is excellent for risk-averse investors.
4. Exposes investors to emerging financial markets.
Emerging markets claim a large chunk of the Gone Fishin’ Portfolio. That is not surprising, considering the juicy potentials these niches offer. But there is no aspect of the market without any risk, and the emerging markets are not an exception.
You should expect some level of risk with emerging markets. But the higher-earning potentials, especially when compared to the stocks of the developed markets, make the risk all worth it.
5. Exposes investors to small-cap stocks.
Over the years, the market data has shown what great performers companies with small market caps are. They often outperform the large market cap companies. Green saw this trend and allocated a decent part of his portfolio to stocks with small market capitalization.
Another notable pro of this portfolio is the introduction of ex-US international stocks, making up for the lack of international exposure in equities reported among most U.S. retail investors.
Gone Fishin’ Portfolio – The Cons
I’ve given you reasons to choose the Gone Fishin’ Portfolio. But there are some essential drawbacks you should be aware of also.
1. Risks are still present.
This may sound somewhat contradictory, but I will ensure it is not. Yes, we have said that the Gone Fishin’ portfolio was curated to minimize drawdown risk. But we cannot entirely dissociate a portfolio comprising emerging market stocks, small market cap stocks, and foreign market stocks from risk.
Essentially, this lazy portfolio is not 100% risk-free, and it is fair that we inform ourselves of what to expect.
2. Small-cap exposure could be better.
While there is no mishap in exposing a lazy portfolio to small-cap companies, the heavy diversification is an issue. The Gone Fishin’ portfolio allocates equal exposure to both value and growth.
We have seen small value stocks deliver excellent performance over the years, but their growth counterparts are not stable. So, assuming the small-cap growth stocks underperform, the effects may as well spread to the small-cap value part of the portfolio.
3. Not the simplest.
I have discussed how it is relatively easier to set up this portfolio. But the truth is, you still have to put in considerable work to correctly pick 10 diversified ETFs to reflect the portfolio structure.
Most newbie investors may struggle with this. And when you compare these specifics with what is obtainable in other lazy portfolios like Ray Dalio All Weather Portfolio and the Three-Fund Portfolio from Bogleheads.
Is the Gone Fishin Portfolio Right for You?
Despite its numerous perks and potential, this portfolio from Alexander Green is not suitable for every investor. Before you consider diving into the GFP, you should first identify your primary investment goal. Are you doing this for the long term? Do you mind leaving your portfolio, and by extension, your money on autopilot for 5-10 years? These are questions you must answer. For example, retirees who will soon be living on their investment returns shouldn’t go into a lazy portfolio.
You should also assess your risk tolerance levels. You may just find out that you can take on even more risk than the levels obtainable in the Gone Fishin’ Portfolio. But, conversely, if you find yourself to be highly risk-averse, i.e., you want your money protected even when the chips are down, this should be your go-to portfolio.
It is also a great fit for anyone who wants to be a passive investor – you can be confident of investing your money in a relatively safe system while investing your time and effort into more important things.
Gone Fishing Portfolio: ETF Allocations
Using only ETFs, you can set up a typical Gone Fishin’ Portfolio. I have curated a list as a guide below;
- Vanguard Total Stock Market Index Fund ETF (VTI) represents 15.00% U.S. Total Stock Market.
- Vanguard S&P Small-Cap 600 Index Fund ETF (VIOO) represents 15.00% U.S. Small Cap.
- Vanguard FTSE Emerging Markets Index Fund ETF (VWO) represents 10.00% Emerging Markets.
- Vanguard FTSE Pacific Index Fund ETF (VPL) represents 10.00% Pacific Stocks.
- Vanguard FTSE Europe Index Fund ETF (VGK) represents 10.00% European Stocks.
- Vanguard Total Bond Market Index Fund ETF (BND) represents 10.00% Total US Bond Market.
- iShares Broad USD High Yield Corporate Bond ETF (USHY) represents 10.00% High Yield Corporate Bonds.
- Vanguard Short-Term Inflation-Protected Sec Idx ETF (VTIP) represents 10.00% Treasury Inflation-Protected Securities.
- Aberdeen Standard Physical Precious Metals Basket Shares ETF (GLTR) represents 5.00% Precious Metals.
- Vanguard Real Estate Index Fund ETF (VNQ) represents 5.00% REITs (Real Estate).
I have used more Vanguard funds in my compilation because they are largely reliable with minimal expense ratios. However, you may adopt funds with similar structures from other providers.
The concept of lazy portfolios is not entirely new. Think about a portfolio suited for long-time investment with minimal risk and almost zero intervention over time – that’s a lazy portfolio.
Gone Fishin’ Portfolio is one of the most sought-after lazy portfolios out there. It is a highly diversified portfolio that spreads across and within different asset classes to minimize risks. Another significant advantage of investing in this portfolio is its proven track record over time. It has competed closely and favorably with the S%P 500 over 10-20 years.
Before you pitch your tent with Alexander Green’s revered portfolio, ensure you are in the game for the long term and have no problems choosing safety over unprecedented gains. While the gains are not so bad, they do not compare to what riskier portfolios and strategies offer.
Finally, prioritize rebalancing if you are adopting the Gone Fishin’ strategy. You do not want your portfolio excessively exposed to risk or minimally exposed to assets that will outperform.
Thank you for sticking with me all the way. If you find this rather long piece useful and enjoyable, you should check out more value-packed articles on investments and the stock market. You will surely enjoy them.