Annual Update
Our Gone Fishin’ Portfolio Beat the S&P 500 in 2022
2022 was a year that most investors would just as soon forget.
The S&P 500 declined 19.4%. Midcap and small cap stocks fell sharply too.
Equity markets posted negative returns in Europe, Asia and Latin America.
Real estate investment trusts and gold shares also fell.
Ordinarily, bonds provide ballast, rising in value as share prices fall.
But not this time.
The U.S. bond market just had its worst year in history. (The Bloomberg U.S. Aggregate Bond Index dropped 13%.)
Treasurys fell sharply as the Federal Reserve raised interest rates at the fastest pace in decades.
Investment-grade corporates also tanked. So did high-yield corporates. And so - to the surprise of many - did inflation-protected bonds, or TIPS.
It was a rare year that tested the mettle of even the most sophisticated investors.
And led novice investors to conclude that asset allocation and diversification simply don’t work.
That’s not true, of course.
Over short periods of time, there can be remarkable correlation in the prices of equities and fixed income securities, on both the upside and the downside.
But over the longer term they diverge, allowing investors to outperform by asset allocating and rebalancing.
That’s the whole point of our Gone Fishin’ Portfolio.
It declined in 2022. (How could it not when every asset class delivered a negative total return?) But it did better than the S&P 500.
And that’s still a win.
Two decades ago, when I created the Gone Fishin’ Portfolio - the most conservative one in my Oxford Communiqué - I asked Members a question...
If I could show you a way to manage your money yourself, using a strategy as powerful and effective as any used by the nation’s top financial institutions... that will allow you to outperform the vast majority of investment professionals... that imposes zero sales charges, brokerage fees or commissions... that takes less than 20 minutes a year to implement... and is based on an investment strategy so sophisticated it won the Nobel Prize in economics, would you be interested?
The answer was a resounding “Yes!”
(My book on the strategy - out just a few years later - became an immediate New York Times bestseller. A revised and updated edition - with a new foreword by longtime Chairman’s Circle Member Bill O’Reilly - came out in 2021.)
The Gone Fishin’ Portfolio is a battle-tested strategy built on the most advanced principles of money management.
And - as its two-decade track record attests - it works.
The portfolio is based on the only realistic premise for an investment program: that, to a great extent, the future is unknowable.
No one can be sure what will happen to the global economy, interest rates, the dollar, or world stock and bond markets each year - or even each decade.
(The S&P 500, for instance, delivered a negative total return from January 2000 through December 2009.)
Rather than pretend that we can eliminate uncertainty, the Gone Fishin’ strategy makes it our friend.
We capitalize on unpredictability by dividing the portfolio among 10 imperfectly correlated asset classes - represented by one exchange-traded fund (ETF) and nine low-cost Vanguard funds - that reflect our Oxford asset allocation model.
Once the portfolio is set up, you simply take 20 minutes a year to rebalance it. (That means returning the portfolio to the original asset allocation once every 12 months.)
The rest of the time you are free to “go fishin’,” whether you define that as golf, travel, time with the grandkids or actually casting a line somewhere.
Last year the portfolio - with dividends collected - declined 14.9%.
That was more than 400 basis points better than the S&P 500's 19.4% decline.
The outperformance was partly due to the Gone Fishin' Portfolio's more conservative structure.
Thirty percent of the portfolio is evenly divided between high-grade bonds, high-yield bonds and inflation-adjusted Treasurys.
Bond prices fall when interest rates rise. So the fixed income portion of the portfolio declined last year, just less than U.S. stocks.
The Gone Fishin’ Portfolio has substantial exposure to international markets.
Those bourses have underperformed the U.S. market over the last decade but declined less than the S&P 500 last year, partly because of the sharp decline of the dollar in the fourth quarter.
Why do we use index funds rather than actively managed funds?
Because our investments are based on hard numbers... not big promises.
Investment consulting firm Greenwich Associates notes that “over 10 years, 83% of active funds in the U.S. fail to match their chosen benchmarks; 40% stumble so badly that they are terminated before the 10-year period is completed.”
In other words, more than 8 out of 10 broker-sold funds underperform. (And those are the winners that aren’t shut down to avoid further embarrassment.)
That is why low-cost, tax-efficient index funds are the perfect foundation for long-term investors.
An investment of $100,000 in the Gone Fishin’ Portfolio in January 2003 - with dividends reinvested - was worth $441,330 at the end of 2022.
(These figures are net of all costs and can be verified using Vanguard’s own numbers.)
We also have a longtime ETF version of this portfolio, and its long-term returns, as you’d expect, are nearly identical.
The Gone Fishin’ Portfolio allows you to manage your serious money in a serious way. It - or something very much like it - should be the foundation of your investment program.
Why use this strategy? Because it eliminates six major investment risks...
- It keeps you from being so conservative that your purchasing power fails to keep up with inflation.
- It prevents you from being so aggressive that your portfolio - or a large portion of it - goes up in flames.
- It eliminates individual security risk. (Each fund is a broadly diversified fund, so there is no chance of a single security - think WorldCom or Lehman Brothers - causing your portfolio to crater.)
- It ends delegation risk. You can easily manage this portfolio yourself. That means no one can mismanage your money, run away with it or siphon off an ocean of fees.
- It avoids economic forecasting and market timing. Since these can’t be done accurately and consistently - and therefore don’t add value - they are no part of this strategy (or any of my other investment strategies, for that matter).
- It ends wasted time and effort. While other investors spend countless hours evaluating market data, financial advisors or competing theories about the future, you’ll have gone fishin’ instead.
Fully consider that last point.
Your most valuable asset is not your home, your bank account or your investment portfolio.
It’s the amount of time you have left on this little blue ball.
The Gone Fishin’ Portfolio is a long-term asset allocation strategy that gives you a high probability of increasing your net worth.
But it guarantees you more time with the people and pastimes you love.
Perhaps that is what recommends it most.
Good investing,
Alex