The events of the past two years got me well off topic from my previous goal of optimal retirement portfolio construction. My greatest wish had been to construct a set-and-forget portolio that would withstand any kind of market and provide decent returns both for accumulation before retirement and during retirement. A second desirable consideration was that it be simple and require very little work. I have frequent requests to revisit this important issue.
Last year we learned, or re-learned, that in systemic crisis markets everything becomes corellated, and almost all asset classes move as one, and that is because a lot of leveraged and/or panicked players simply have to sell everything in a hurry.
But that was then. I don't know, or know of, anyone who always understands what's going to happen in the markets or the economy in the future. But here is an interesting fact. Vanguard's Wellington Fund (VWELX) started in 1929 (oooops!), and Wellington has an annualized total return (all dividends re-invested and no taxes paid) of 8.11% since 1929. Imagine what that return must be from the 1932 low. Through many wars and social upheavals, depressions and manias, and bear and bull markets, 8.11% annualized.
Wellington has about 65% stocks (~10% foreign) and 35% bonds and sister fund Wellesley Income (VWINX) about 35% stocks and 65% bonds. VWINX has returned 10.14% annunalized since mid 1970. A very good case can be made for one or the other of these two funds as one-stop-shopping choices for long term tax-deferred retirement accounts: up to age 45-50 going with Wellington and then switching to Wellesley. Uncomplicated.
On the chart from my data base start date of September 1, 1988, I also show Bill Gross's PIMCO Total Return Bond Fund (PTTRX) along with the others. If you had equal amounts of PTTRX and Wellington Fund, your return would have been almost the same as Wellesley VWINX for the same period. So Wellesley is the laziest and least complicated way to go. Both bond and stock markets have been in bull markets for much of the last 21 years (bonds for sure), and we can't know whether this will work for the next 21 years. But we never do know in advance. Things seem dreadful now but no one really knows how it will turn out over time.
Another factor is inflation. There was inflation from the late 1960's through 1981 and again from 1999 to 2008, and stock returns were still quite respectable. VWELX and VWINX are good stock pickers and they included inflation stocks, and foreign stocks, and do so now. But one might want to consider an additional inflation hedge. Energy stocks have been a far better hedge than precious metals stocks. So if you buy VWELX or VWINX, depending on age, you might want to add 5% in VGENX. So you could have only two mutual funds and relax and forget it all.
It depends upon your personal investment skills which may or may not be able to improve on this, the amount of time you have or want to have to manage your investments, and your ability to ignore events if you have a one-stop-shopping portfolio. So think about who and what you really are and what you really want to do. There is only one right way, and that is a way you can live with and actually perform being who and what you are. Some self knowledge and honesty is required here. And consider whether you really want to be day trading when you're 70 or 90 years old.
If you had put $10,000 into Wellington in 1929(!), re-invested all the dividends, and paid no taxes--not possible of course except for a long term trust--you would have $6,430,189.84 today. That's the purpose of long term investing, and it gives new and deeper meaning to the phrase that "time is money".
I am a Vanguard client but have no other connection of any kind to them. You could do this with other long existent mutual fund companies. These are my ideas and not recommendations.
