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Putting the Gone Fishin' Portfolio to the Test

The Gone Fishin' Portfolio - rebalanced annually - has compounded at 10.6 percent annually in the seven years since its inception in 2003. That's considerably better than the return of the S&P 500 over the same period. And it was less risky than being fully invested in stocks.

Of course, a lot of investment strategies work in a rising market. Yet they often lag when the market takes a tumble.

But not the Gone Fishin' Portfolio.

Had you followed the Gone Fishin' strategy during the bear market of 2000 to 2002, for example, you would have seen a decline of 6.1 percent in 2000, 2.7 percent in 2001, and 5.4 percent in 2002. These are temporary declines that most investors can live with. The S&P 500, by contrast, fell harder: down 10.1 percent in 2000, down 13 percent in 2001, and down 23.4 percent in 2002.

Don't get me wrong. I cannot guarantee that the Gone Fishin' Portfolio will beat the S&P every year. Of course, no other strategy can, either. But there is good cause to believe it will continue to outperform in the years ahead.

First, let's look back a little further and see how you would have done had you held the Gone Fishin' Portfolio, and rebalanced annually, over the last decade.

As the stock market climbed in the late 1990s, you would have steadily reduced your exposure to fast-appreciating equities and added to lagging areas like bonds, REITs, and mining shares.

At the time, this felt to most investors like exactly the wrong thing to do. After all, stocks were on fire, and these other assets were going nowhere or, worse, down. But history teaches us that all markets move in cycles. And when stocks got pummeled, what ended up soaring in value? Sure enough, it was the alternative assets like bonds, REITs, and gold shares.

Following the Gone Fishin' strategy of asset allocating and rebalancing would have allowed you to trim your generous profits during the bull market of the 1990s. It would also have saved your hide and protected most of your gains during the bear market of the next three years.

Of course, more good things would have happened if you had stuck to this discipline. As stocks hit new lows in 2000, 2001, and 2002, you would have kept rebalancing your portfolio. What then?

Portfolio Annual Returns

A whole new bull market started and all those stocks that you bought when they were cheap were now rocketing higher once more. Before long, in fact, the market was hitting new all-time highs.

By now you know the drill. That means when it came time to rebalance, you were once again selling the asset classes that had appreciated the most and adding to those that were cheapest.

That's the real beauty of the system; it doesn't just aim for you to buy low and sell high. It forces you to. And that gives you a significant performance boost.