Wouldn’t it be great if investing in the stock market was as simple as setting up a portfolio, maintaining it once per year, and spending the rest of your days fishing (or whatever else you enjoy doing)?
According to Alexander Green, chief investment strategist of the Oxford Club — one of the most subscribed to investing newsletters online today — it’s not only possible, it’s happening every day.
Alex Green developed what’s known as the Gone Fishin’ Portfolio, which was designed to give investors the ability to do just that. According to Green, all you have to do is set it, forget it, and get on with your life.
What Is the Alexander Green Gone Fishin’ Portfolio?
Green is the author of the bestselling book “The Gone Fishin’ Portfolio: Get Wise, Get Wealthy…and Get on With Your Life.” He’s also the author of the following titles:
- “Beyond Wealth: The Road Map to a Rich Life”
- “An Embarrassment of Riches: Tapping Into the World’s Greatest Legacy of Wealth”
- “The Secret of Shelter Island: Money & What Matters”
His books are great reading from an expert who’s worked as an investment advisor, research analyst, and a portfolio manager.
All told, Green is a Wall Street guru of sorts. His Gone Fishin’ Portfolio is based on diversification, spreading assets across a wide range of asset classes, and different opportunities within those classes.
The portfolio is also categorized as a so-called “lazy” investment portfolio, meaning that it’s relatively simple to set up and OK to forget you even have it in your day-to-day life.
In his book about the portfolio, Green points out that time is your most precious resource, and it shouldn’t be spent maintaining your stock market investments.
Portfolio Asset Allocation
As mentioned above, the Gone Fishin’ strategy is centered around diversification. The portfolio calls for your investment dollars to be spread across 10 different exchange-traded funds (ETFs), giving you widespread exposure to assets that aren’t highly correlated with each other. Here’s how the portfolio suggests assets should be allocated:
- 15% in U.S. Stocks. The United States is the world’s largest economy, and it offers some of the largest opportunities in the stock market. This part of the allocation gives you access to a diversified portfolio of those opportunities.
- 15% in U.S. Small-Cap Stocks. The next asset in the portfolio is small-cap domestic stocks. It’s important that this allocation is highly diversified between sectors and offers exposure to both growth and value small-cap stocks.
- 10% in European Stocks. Europe is a key geopolitical bloc and collectively represents a massive economy, offering investment opportunities in developed markets outside the U.S.
- 10% in Pacific Stocks. Many nations in the Pacific region are developing into large economies, representing yet another area where big opportunities are likely to arise.
- 10% in Emerging Markets Stocks. Emerging markets are regions where the economies are not quite fully developed, but are growing quickly. These are markets like China, Brazil, and South Africa.
- 10% in Short-Term Investment-Grade Bonds. Short-term bonds are akin to cash. They offer some level of stability and are generally highly liquid.
- 10% in High-Yield Corporate Bonds. High-yield corporate bonds are another important piece of the safe-haven allocation in the portfolio, offering further stability to the mix.
- 10% in Treasury Inflation-Protected Securities (TIPS). TIPS are securities offered by the U.S. Treasury that are designed to act as a hedge against inflation.
- 5% in Real Estate Investment Trusts (REITS). Moving away from corporate gains and the whims of the corporate world, the portfolio also allocates a small slice of the pie to real estate investment trusts (REITs).
- 5% in Precious Metals. Finally, precious metals have long been viewed as a hedge against drawdowns in the stock market and account for another important piece of the safe-haven portion of the portfolio.
The Investment Thesis Behind the Portfolio
In very basic terms, Green’s Gone Fishin’ Portfolio follows the belief that diversification is a key factor when investing because it helps to reduce exposure to volatility and the risk of drawdowns should things go wrong.
At the end of the day, financial markets are known to ebb and flow. Green suggests that by investing in assets that have a negative correlation to one another, you’ll be able to shield yourself from much of the risk involved in investing while enjoying the rewards the market has to offer.
Assets with negative correlations move in opposite directions in relation to each other. For example, when stocks head up, bonds tend to fall, creating a negative correlation between the two.
With that said, let’s break down the strategy a bit further:
Stocks and Safe Havens
There’s a strong negative correlation between stock investments and safe-haven assets like bonds, Treasury debt securities, and precious metals. By including a good mix of these assets, when stocks fall, the safe-haven assets within the portfolio will help to pick up the slack, minimizing the pain you would feel in your total return.
Negative Correlations Between Safe Havens
Through his Gone Fishin’ Portfolio, Green also exploits the negative correlations found among safe-haven investments. For example, short-term investment-grade bonds are similar to cash. They don’t earn very much in terms of return, but are highly liquid and a great way to park money that you’re not interested in investing anywhere else. However, the gains offered often fall short of inflation.
On the other hand, the portfolio also invests in TIPS, which offer a direct hedge against inflation, while still maintaining diversification value as a safe haven against stock drawdowns. Much of the same can be said for precious metals, one of the most common inflation hedges used by many investors.
Pros and Cons of the Gone Fishin’ Portfolio
As with any portfolio strategy, the Gone Fishin’ portfolio comes with its own set of pros and cons. Some of the most important to consider include:
Gone Fishin’ Portfolio Pros
Green’s Gone Fishin’ Portfolio has become popular over the years, and that doesn’t happen unless there are perks to the style of investing. Some of the most significant benefits to following this portfolio strategy include:
- Strong Annual Return. Going back to 2001, the portfolio has generated a compound annual growth rate (CAGR) of more than 7.5%, while the S&P 500’s CAGR during this period has been around 7.3%. Although the outperformance hasn’t been mind-blowing, the portfolio strategy does have a strong history of performing well compared to benchmarks.
- Set It and Forget It. The portfolio was designed to be a set-it-and-forget-it investing option. This helps to simplify the investing process and limit the time you need to spend to make sure your investments are successful.
- Heavy Diversification. The portfolio features heavy diversification both across asset classes and within assets classes. The assets in the portfolio were thoughtfully chosen due to their negative correlation with each other, helping to minimize risk.
- Exposure to Emerging Markets. A large portion of the stock allocation in the portfolio is geared toward emerging markets. Although there are added risks to consider when investing in companies in emerging economies, they tend to offer increased earning potential compared to stocks in developed regions.
- Small-Cap Exposure. Companies with small market caps have outperformed their large-cap counterparts throughout history. So it’s nice to see that there’s such heavy exposure to this type of stock within the portfolio.
Gone Fishin’ Portfolio Cons
Sure, there are plenty of reasons to consider diving into the portfolio and going fishing with the time you save, but as the saying goes, every rose has its thorns. Unfortunately, the Gone Fishin’ strategy is no different. Some of the most important drawbacks to consider include:
- Small-Cap Exposure Is a Wash. The exposure to small-cap companies is heavily diversified, offering equal exposure to both growth and value. While small value stocks have historically had a risk benefit and outperform over time, small growth stocks tend to be swings for the fences that are often a bust. Losses on small-cap growth plays could wash out the gains seen on the small-cap value side of the portfolio.
- Increased Risk. While its assets were chosen thoughtfully to minimize drawdown risk, any time a portfolio has heavy allocation to emerging markets, foreign markets, and small market caps, the risks are increased. You should be aware of and consider these risks before taking advantage of this style of investing.
- There Are Simpler Portfolios Out There. If your goal is to add simplicity to the investing process, a portfolio that involves investing in 10 diversified ETFs may not be your cup of tea. Other portfolios like the Bogleheads Three-Fund Portfolio or the Ray Dalio All Weather Portfolio might be a better fit.
Who Should Use the Gone Fishin’ Portfolio
Although the Gone Fishin’ strategy may not be the best fit for every investor, it’s one of the most diverse fits on the market today. The portfolio couples stocks that come with strong potential returns with safe-haven assets that offset the volatile nature of the market. At the same time, assets within the portfolio were chosen as a result of their negative correlations, further helping to flatten out the choppy waters of the market while reducing risk.
On the other hand, there is a small group of investors that should steer clear of this portfolio strategy: retirees. These investors either live on or will soon be living on their investment dollars. If a market crash takes place, they’ll want their money protected rather than left exposed to the carnage.
The reality is that while the portfolio is designed to minimize drawdown risk, there’s still quite a bit of risk to consider. Historically, the portfolio’s declines in market downturns have been similar to those experienced by the S&P 500 index. Investors nearing retirement, in retirement, or with a short investing time horizon should avoid any strategy that puts risk in line with overall market benchmarks.
How to Duplicate the Gone Fishin’ Portfolio
Given the protection such a diversified portfolio offers, in combination with the stellar performance the portfolio has experienced throughout its history, it’s not surprising that so many investors are duplicating it.
While the traditional Gone Fishin’ Portfolio allocation is reasonable, some have adjusted the small-cap holdings in the portfolio to generate even higher returns. Below, you’ll find the makeup of the traditional portfolio as well as an adjusted version that increases the earnings potential in the small market cap holdings:
The Traditional Gone Fishin’ Portfolio
The traditional Gone Fishin’ portfolio is relatively simple to set up using a series of ETFs, most of which are Vanguard funds. Here’s how it’s done:
- 15% in Vanguard Total Stock Market Index Fund ETF (VTI). The VTI fund invests in a highly diversified group of U.S. stocks. Holdings in the portfolio range in market caps, regions, and sectors, making it a great way to address the entire domestic market.
- 15% in Vanguard Small-Cap Index Fund ETF (VB). The VB fund offers up yet another highly diversified portfolio. However, this fund is focused on the smaller companies on the market, only investing in companies with small market caps. Nonetheless, there’s still quite a bit of regional and sector diversity.
- 10% in Vanguard FTSE Pacific Index Fund ETF (VPL). The VPL fund was designed to provide diversified exposure to companies in the Pacific region. Holdings range in market caps, regions, and sectors, with the vast majority of holdings being in companies from Japan, Australia, Hong Kong, New Zealand, and Singapore.
- 10% in Vanguard FTSE Europe Index Fund ETF (VGK). Yet another highly diversified fund, VGK invests in various sectors and market caps, primarily in companies in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the U.K.
- 10% in Vanguard FTSE Emerging Markets Index Fund ETF (VWO). The VWO fund offers diversified exposure to emerging markets, with investments focused primarily in China, Brazil, Taiwan, and South Africa. The fund invests in all market caps and sectors in these regions.
- 10% in Vanguard Short-Term Bond Index Fund ETF (BSV). The BSV fund offers diversified exposure to short-term investment-grade bonds with maturities ranging from one to five years.
- 10% in iShares Broad USD High Yield Corporate Bond ETF (USHY). The USHY fund is a highly diversified investment in domestic high-yield bonds. In fact, iShares suggests that the fund provides broader exposure to high-yield bonds than any other ETF on the market today.
- 10% in Schwab U.S. TIPS ETF (SCHP). The SCHP fund covers the TIPS holdings in the portfolio, offering broad exposure to U.S. Treasury inflation-protected securities.
- 5% in Vanguard Real Estate Index Fund ETF (VNQ). The VNQ fund is a real estate-centric investment, offering exposure to REITs. The fund invests in a wide range of real estate, addressing various property types and regions across the United States.
- 5% in Aberdeen Standard Physical Precious Metals Basket Shares ETF (GLTR). GLTR is a fund that invests heavily in physical precious metals like gold bullion.
Pro tip: You don’t have to build the portfolio yourself. You can use M1 Finance and simply load the Alexander Green Gone Fishin’ Portfolio prebuilt expert pie to gain access to a curated allocation of securities that follows this strategy.
The Small Market Cap Adjusted Gone Fishin’ Portfolio
The only real gripe with this portfolio is the fact that the holdings in small market cap companies are too diversified. Some have compared small growth stocks to a black hole, not offering up much by way of increased earnings potential in exchange for the increased risk of investing in small companies.
At the same time, small value companies have a strong history of performance, offering compelling potential growth to offset the increased risk. Unfortunately, the small-cap holdings in this portfolio address both small value and small growth companies.
This can be adjusted to focus specifically on small value companies to increase earnings potential. To do so, simply replace the15% allocation in the VB fund with the Vanguard Small-Cap Value Index Fund ETF (VBR).
Maintain A Balanced Portfolio
It’s important that you keep your portfolio balanced if you’re going to go with any rendition of the Gone Fishin’ strategy. After all, the portfolio was designed to provide protection through diversification and evenly balancing assets that have historically had negative correlations with one another. If the assets fall out of balance, it could result in too much exposure to risk or too little exposure to assets that are likely to outperform.
Over time, as prices of assets within the portfolio move in value, you’ll notice some move at a different rate than others, which will ultimately skew the balance. By regularly rebalancing your portfolio, you have the ability to minimize any risk associated with this price action.
In his book about the Gone Fishin’ Portfolio, Green suggests that once you set the portfolio up, you’ll only need to rebalance once annually. However, that’s a bit more passive than many experts believe any investor should be.
While it won’t be necessary to rebalance on a weekly or even monthly basis, it’s a good idea to take a look at your portfolio at least quarterly to ensure your allocation stays in line with the strategy.
All in all, the Gone Fishin’ strategy is one of the most diversified, well-balanced prebuilt portfolios available today. The fact that the assets were thoughtfully chosen for their negative correlations, and that the portfolio focuses on both domestic and international stocks, makes it a strong choice for most investors.
On the other hand, if you’re nearing or enjoying retirement, this may not be the portfolio for you because it does come with excessive drawdown risk for near-term investors. Nonetheless, if you have a long-term time horizon and are looking for a relatively safe portfolio with the potential for meaningful gains, this is a great portfolio to consider.