Copyright 2013 Tom Madell, PhD, Publisher
Mid-Jan. 2014 Update. Published Jan. 15, 2014

Performance Update for Our Long-Term Model Portfolios

By Tom Madell

Let's look at how a long-term investor would have done if they held our recommended funds without making any changes from the day we began recommending them at the start of a given year through the close of 2013. (Of course, while we do update each portfolio every quarter with funds we think may do even better than those previously recommended, we realize that not every investor wants to make changes very frequently, if at all. Further, some of the initially recommended funds may close to new investors; we try to be aware of such closures since we don't like to recommend funds to new readers if they are currently closed.)

Here's a summary of results:

  Stock Funds
Our Result (Benchmark Result)
Bond Funds
Our Result (Benchmark Result)
2013 Portfolio
(1-yr. Return)
28.9% (28.4) -0.9% (-2.0)
2011 Portfolio
(3-yr. Return, annualized)
14.2% (12.8) 4.7% (3.3)
2009 Portfolio
(5-yr. Return, annualized)
16.1% (16.7) 4.0% (4.4)

The Jan. 2013 Portfolios

Our stock portfolio returned 28.9%. This compares to 28.4% for our benchmark portfolio made up of 65% US stocks, 30% developed country stocks, and 5% emerging market stocks. Thus, we held a small +0.5% advantage.

The only stock fund to trail badly was our real estate (REIT) ETF, VNQ. (Note: The following quarter, we switched to TVRVX which turned out to be one of the best performing Real Estate funds over the entire year.)

If you held our Jan. 2013 bond portfolio, you would not have escaped the generally poor returns for bonds for the year. However, our portfolio did outperform the return on the benchmark (the AGG ETF) by 1.1%. Our high yield fund pick, PRHYX, was our best performer. The funds that hurt our results the most were our inflation protected bonds, PRRIX and HARRX, as well as long-term investment grade bonds, VWESX. Note that the return for our bond portfolio reflects the favorable tax-equivalent return afforded for investors in our recommended muni bond fund VWITX who are at least in the 28% Federal tax bracket.

The Jan. 2011 Portfolios

If one merely held the Jan. 2011 stock portfolio in the proportions we recommended, the portfolio would have returned 14.2% annualized. This compares with a return of 12.8% annualized using the above stock market benchmark.

As has been a regular occurrence over at least the last 5 years, international stocks drastically underperformed US stocks. Other than that, our stock portfolio performed in line with expectations

If you continued to hold our Jan. 2011 bond portfolio unchanged, you also would have outperformed the above bond benchmark. Our portfolio returned 4.7% annualized vs. AGG's 3.3% annualized for a 1.4% annualized advantage. Several of our choices were most advantageous, including VWEHX and the two funds managed by Bill Gross, PTTRX and HABDX. The portfolio also reflects a slight boost for investors in VWITX because of the higher aforementioned tax-equivalent return for 28% or higher Federal tax bracket muni bond investors.

The Jan. 2009 Portfolios

If one goes back to the portfolios we presented in Jan. 2009, here our stock portfolio underperformed our benchmark, 16.1% annualized vs 16.7%. While most of our funds did well, two funds, VPACX, and especially HSGFX, hurt results. (Note: We jettisoned HSGFX in Jan. 2010 while its returns were still positive, but weak; in the following 4 years, its annualized returns turned negative.)

Our Jan. 2009 Model Bond Portfolio also underperformed, trailing its benchmark 4.0% annualized as compared to 4.4% annualized. At the time, we were still mired in the worst bear market in generations. We cautiously recommended a little over 50% in mid- and long-term US treasury funds. (Note: Once the bear market had ended, we eliminated our long-term treasury recommendation a few months later.) Our best recommended contributor to the portfolio was PTTRX.

If one were to extrapolate from the above results, one might take away the following:

      --Our results continue to demonstrate, as we state on our main web page, what we believe is one of the most consistent track records anywhere. While our results over the last one and three years were able to come out ahead of the benchmarks, we did so by investing in what mostly would be considered relatively safe and mainly moderate risk choices. (Note: Performance results include all funds mentioned in our model portfolios; if more than 1 fund was recommended for a given fund category, each was given an equal weight.)

      --When investing for periods as long as 5 years, while buy and hold may certainly appeal to many investors, the investing environment may change enough to make it worthwhile to make some changes within a portfolio. In this way, out-of-favor, poorly performing funds can be eliminated.

      --When constructing a portfolio, research can generally help you uncover funds that may do better then competing funds. For example, our international stock fund choices have tended to do better than the benchmark for international funds, the total return on the MSCI EAFE Index. And our long-standing inclusion of PTTRX in our bond portfolios has almost always beat its AGG benchmark.

      --Our fund choices and percentage allocations, regardless of when we made them, have proven to capture excellent returns as compared to benchmarks. Of course, we will not always get excellent returns, especially if the overall stock or bond markets do not do well.


Closed Fund: The Yacktman Fund (YACKX) recommended in the Jan. 2014 Model Stock Portfolio in the Large Blend is closed to new investors. If you are not already in YACKX, you may want to consider Fidelity Large Cap Stock (FLCSX) which has an excellent long-term track record.


To sign up to receive notification of new Newsletter postings as well as infrequent, but crucial, investment Alerts, click here.


If you found this article helpful, consider pasting this link to it in an email to a friend: