Here are seven of Agostino Carbone’s favorite ETF portfolios.
The proliferation of hundreds of new exchange-traded funds (ETFs) each year has made investing in almost any asset class simple…but it also has created challenges and confusion for small investors trying to build the best diversified stock and/or bond portfolios to meet their particular needs—how many ETFs should you use in your portfolio?…what percentage of your assets should be allocated to each ETF?…and what do you hope to achieve through your mix of ETFs?
Data scientist Agostino Carbone realized he could use this wealth of ETFs to mimic strategies used by dozens of the world’s best-known financial figures—from Warren Buffett…to hedge-fund billionaire Ray Dalio…to top financial advisor and author Paul Merriman.
In 2019, Carbone launched the free website LazyPortfolioETF.com, offering something for all kinds of investors, whether they want growth stock ETFs or conservative bond ETFs. The portfolios require little monitoring or active trading. All you have to do is follow the suggested allocations…invest in the low-cost ETFs offered by established fund providers such as Vanguard and iShares…and rebalance back to your original allocations once a year.
Here are seven of Agostino Carbone’s favorite ETF portfolios. All of them are listed on his website, along with extensive research about each portfolio’s risks and performance.
Performance: 11.6%.*
This portfolio is a simple, two-fund bet on the long-term growth of the American economy. It consists of an S&P 500 ETF that captures the performance of the majority of the US stock market and a short-term Treasury bond ETF. The bond allocation cuts the fund’s overall volatility by 10% but still produces nearly the same long-term return as a 100%-stock portfolio. Warren Buffett has stipulated that the billions of dollars he is leaving in a trust to his wife in his will should not be invested in Berkshire Hathaway stock but rather in this strategy. “I believe the trust’s long-term results from this policy,” he said, “will be superior to those attained by most investors—whether pension funds, institutions or individuals—who employ high-fee managers.”
Performance: 4.7%.
Billionaire hedge-fund manager Ray Dalio likes to call this five-fund strategy the “Holy Grail of Investing.” It is based on the principle that real diversification isn’t just about owning hundreds of stocks—because during a recession/and or bear market most stocks fall at the same time. Instead, Dalio feels that while the future is unknowable, the key to building an all-weather portfolio is that the economy fluctuates between just a few well-known environments—prosperity, recession, inflation and deflation. Investors should always own at least one asset class that can rise and support returns through any of these four environments. Example: Stocks do well during economic booms…short-term bonds hold up well in recessions…gold and commodities tend to thrive in inflation…and long-term Treasuries offer protection against deflation.
Performance: 6.3%.
Burton Malkiel, PhD, is one the country’s pre-eminent economists. He is an investment professor at Princeton University, a former member of the White House Council of Economic Advisers, and best-selling author of the classic investment guide A Random Walk Down Wall Street. Malkiel’s portfolio addresses one of the most challenging periods for investors—early retirement, when you not only must start to draw down your investments but also need to make sure your portfolio continues to grow enough to last for 30 years or more. The eight-fund portfolio is a moderate mixture of domestic and international stocks and bonds with a conservative value tilt. The appeal here is flexibility. The portfolio can be structured anywhere from 70% stocks-30% bonds to 30% stocks-70% bonds, depending on your specific financial needs, other sources of income and risk tolerance.
Performance: 2.8%.
Most investors structure their portfolios based on the world behaving in normal ways. Either the economy grows, corporate profits rise and the stock market goes up…or the economy stumbles and the stock market tanks. But in reality, shocking, extremely improbable events that rock the stock market happen regularly. Think of the 9/11 terrorist attack…the 2008 financial crisis…the COVID pandemic…and Russia’s invasion of Ukraine. These unexpected events, referred to as “fat tails” or “black swans,” can be devastating to investors, and they can suffer huge portfolio losses that can take years to recover…or they are scared out of the market altogether and never get back in.
Larry Swedroe, director of research at Buckingham Strategic Wealth and coauthor of Reducing the Risk of Black Swans, has created a unique portfolio for very conservative investors to help reduce the impact of extreme market events. This four-fund portfolio resembles an uneven barbell. On one end, a large percentage of the fund is allocated to very safe bonds that provide modest returns but excel during market crashes and minimize the risk of fat tails. The rest of the portfolio is invested in risky, fast-growing stocks that help boost overall long-term returns.
Performance: 6.15%.
When David Swensen took over as chief investment officer of the Yale University endowment in the 1980s, it was worth $1.3 billion. When he left 36 years later, the endowment had risen to nearly $60 billion, a 13.7% average annual gain and the best track record of any university institutional investor. Under his leadership, Yale’s endowment generated an astonishing 20 consecutive years of positive returns, from 1988 to 2008.
One of Swensen’s golden rules was that a stock-and-bond portfolio should stay ahead of inflation. That’s why he maintains heavy allocations to real estate investment trusts (REITs), which hold up well in inflationary environments…and to Treasury Inflation Protected Securities (TIPS), government bonds indexed to the Consumer Price Index, the most common measure of inflation.
Performance: 1.8%.
This six-fund portfolio consisting mostly of bonds was developed by fixed-income experts for clients at the financial-services giant Charles Schwab. The portfolio takes a widely diversified approach with moderate risk, recently yielding 5%.
Performance: 6.3%.
Well-known author and financial advisor Paul Merriman, who founded Merriman Wealth Management, which oversees $3.5 billion in assets, is a big believer in using historical performance data to build portfolios. Merriman found that certain areas of the stock market have resoundingly outperformed others over long periods. Example: Merriman spreads his money across 10 different asset classes, half of which are in foreign stocks. He also keeps 40% of the holdings in small, undervalued domestic and foreign stocks. Reason: Small-cap value has trounced the performance of every other asset class for the last 50 years, producing average returns of nearly 14% a year. Another Merriman insight: Your portfolio has to beat the stock market by only a tiny bit each year to achieve an enormous wealth advantage over long periods. Example: Since 1970, Merriman’s small cap-heavy portfolio has returned 12.1% annually overall, edging out the 10.7% return of the S&P 500 index. That was enough for a $100,000 investment in a Merriman portfolio to grow to $43.8 million versus $23.8 million in the S&P 500.
*All performance figures are annualized for 10 years through Date TK, 2024
