Insights

Beautiful Constants and the Golden Ratio Portfolio

Portfolio Talk

The elegance of numbers is everywhere if you just know where to look. From the spiral of a seashell to the scales of a pinecone, a surprising number of natural objects exhibit a remarkable affinity for a special quantity. An irrational number approximately equal to 1.618 may seem like a strange fixation for thousands of years of mathematicians, but it appears so often that it has earned its own name — the golden ratio.

The golden ratio is everywhere. And not just in the world around us but arguably in our very essence. Long considered an example of the perfect divine proportion, it remains a mainstay for artists and designers seeking to appeal to humanity’s desire for order and beauty. You’ll find it in the composition of Da Vinci’s “The Last Supper” and maybe even the dimensions of computer monitor you’re reading this on. Math, nature, and beauty are more intertwined than you realize.

With that type of history, it seems appropriate that an insightful individual would apply the same universal concept to finance. So today I’m honored to add a new portfolio to the site.

It’s called the Golden Ratio Portfolio by Frank Vasquez. And make no mistake — the classic name serves as a reference for a decidedly modern investing philosophy.

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The Best Upgrades Make Life Easier

Updates

Back when I decided to update the landscaping in my yard, I joked with my wife that my main design philosophy was to make everything easier to maintain. From aiming built-in sprinklers to cover the entire yard at the turn of a faucet to curving the edging around the flower beds to make it easy to track with a lawnmower, each choice was made with an eye towards reducing future effort. The end result was a great experience not only when enjoying a lemonade in a lawn chair but also when regularly breaking a sweat.

Following that same design philosophy, I just released a handful of site updates that majorly reduced my maintenance effort while adding some new functionality that I think you’ll enjoy. Here’s the rundown.

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Brew the Best Version of the Three-Fund Portfolio

Portfolio Talk

A refreshing example of the importance of proportions can be found at your local pub. While beer is generally made of four primary ingredients — malt, hops, yeast, and water — the specific combination of those core ingredients has an important effect on the end result.

A bright, grassy IPA gets its distinct flavor by leaning heavily on the hops, while a smooth, dark porter relies more on roasted malts. Even with the same foundation, the end experience is very different! So before passing judgment on beer as a whole, it’s important to try a few different things to see what you like. Everyone has different preferences, but there are lots of tasty combinations to suit all types of people.

Recently I received a nice email from Taylor Larimore, the “King of the Bogleheads” and author of the Three-Fund Portfolio. Taylor politely asked me to use a slightly different baseline definition of his portfolio with 80% stocks rather than the 60% I showed before. And more importantly, he requested that I clarify that there is actually no fixed allocation in the Three-Fund Portfolio. Instead, he believes each investor should determine their allocation to the three namesake funds according to their own personal situation.

I always strive to accurately reflect the ideas of portfolio authors, so naturally I’m happy to oblige. And beyond a simple recounting of his statement and update to the Three-Fund definition, I thought this would also be a good opportunity to explore Taylor’s point about variable allocations more thoroughly.

What exactly does it mean to choose Three-Fund percentages to best meet your needs?

Like mixing the same four ingredients in different proportions can make distinct beers, rearranging the same three funds in a portfolio really can create different investing experiences. So let’s order a full flight of Three-Fund data to help you identify your favorite.

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Three New Gifts to Start the Year

Updates

In my house the holiday season is always a whirlwind of activity. If the family gatherings, parties, and general festive pandemonium aren’t enough, it’s even more busy in the finance space. After all, the closing of one year and opening of the next means one big thing is on the horizon.

It’s time for new portfolio data!

Because revising every tool on the site is a significant effort, I decided this year to take advantage of the regularly scheduled update to roll out not just one new year of data, but three notable site changes.

So before you settle back into old routines, check back under the tree for a few last-minute Portfolio Charts gifts — new data, new Toolkit options, and a cool new member perk.

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Find Your Ideal Allocation With the Portfolio Optimizer

Chart Talk, Updates

The universe is a big place. You can spend an entire lifetime staring at the skies, mapping every familiar constellation, and getting lost in the beautiful nebulas. But with enough persistence and the right tools you can still find new stars and galaxies that you never knew existed. Space is just that full of countless possibilities.

Choosing a portfolio can sometimes feel the same way. You can know all of the major celestial objects and may even have a favorite you call your own, but the millions of possible options are hard to ignore. So as you contemplate the skies at night thinking about the future you’d like to achieve as soon as possible, it’s natural to wonder what would happen if you just looked a little harder. One more asset. A slightly different percentage. If only you had the right telescope, a better solution might be out there waiting to be discovered.

I’ve spent a lot of time over the years studying portfolio options. But beyond just mapping the skies, I’ve always enjoyed putting my engineering background to good use to work on the tools as well. Today I’m excited to announce a major new upgrade to an old favorite.

I call it the Optimizer. And if you’re looking for new portfolio ideas to expand your investing horizons, you’ve come to the right place.

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A Note of Thanks and a Holiday Offer

Updates

Thanksgiving has always been my favorite holiday of the year. I guess you could say that I’m a traditionalist who looks forward to food, family, and football, but beyond the basic joys that round out the day I also take the opportunity to reflect on the important things in life.

So to celebrate, there’s no long article but just a simple note of appreciation. I’m thankful for all of you in the Portfolio Charts family who follow along, share what you learn with others, support the effort, and generally make it rewarding to do this every day. You’re truly the best.

Following one more Thanksgiving tradition, it seems appropriate to offer a Black Friday discount for people looking for deals. For the next week from today through Cyber Monday, the Portfolio Charts Toolkit is a substantial 50% off. So if you’ve ever downloaded the free sample but were on the fence about buying the Toolkit to create the full suite of charts for your own data, now is a great time to make the leap.

That one small pitch aside, the holiday for me is about more than just an excuse to kick of the shopping season. So regardless of whether you’re a Toolkit person or just a happy Portfolio Charts reader, I hope you have a great week with much to be thankful for.

Happy Thanksgiving!

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Three Risk Parity Strategies Most Immune to Politics

Advanced, Portfolio Talk, Theory

One of my cardinal rules of investing is that politics and money management don’t mix.

It’s not that I don’t have strong personal opinions on certain issues close to my heart just like everyone else. It’s just that I’ve seen far too many otherwise intelligent and level-headed people over the years make insanely shortsighted decisions based on politically-driven exuberance or despair that I’ve learned to separate those base instincts from my financial choices.

As passionate as you may feel today, trading based on elevated political emotions is a choice you’ll most likely live to regret.

That said, I’ve seen a lot of talk in the aftermath of the recent US presidential election about how it may impact the markets in the near future. And frankly, there are some really bad takes out there that may lead normal investors to some very poor ideas from betting heavily on major upswings to selling everything in fear. While I don’t do politics, I still feel the responsibility to offer a constructive perspective helping people navigate their feelings regardless of who they voted for.

To be clear, I have absolutely no idea how markets will react over the coming years and I don’t believe anyone else does either. But I do have a lot of historical data at my disposal and thus a unique opportunity to offer a nonpartisan perspective.

Forget the predictions. Would you like to know which portfolio options are least susceptible to post-election drama?

Stick with me, and you’ll learn how to turn off the cable news and invest with confidence no matter who is in charge.

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When Past Performance Is Absolutely Indicative of Future Results

Beginner

I recently had the pleasure of meeting some new people over happy hour at a local meetup group. Between a few drinks on the patio on a warm early-fall afternoon, we exchanged the typical “so what do you do?” icebreakers, shared some fun stories, and had a great time.

As the introductions turned to me, I guess it’s no surprise that the topic of investing came up. I talked a little about the website I run that studies historical data to help people make wise investing decisions without having to stress about keeping up with the markets. No big deal, but I’m pretty proud of it.

I was sitting next to a smart and accomplished guy who knew a bit about investing, and his natural reaction was a perfect mix of genuine, engaged, and polite. It went something like this: “That’s really cool. But as they say, past performance is not indicative of future returns. It’s too bad that historical data not very useful for decisions today.”

Honestly, his comment didn’t surprise me at all. Not only have I heard that from plenty of investors before, but I’ve also seen the same standard disclaimer on hundreds if not thousands of investing resources over the years.

Past performance is not indicative of future results.

This straightforward statement has become so ubiquitous that many investors simply take it for granted without giving it much thought. And as a result, many intelligent people normally predisposed to evidence-based thinking in other aspects of life nonetheless dismiss the field of portfolio backtesting altogether.

But here’s the thing. That throwaway sentence is often just flat wrong.

So for my new friend asking about my investing hobby and all of my old ones here wondering how to properly apply historical data to today’s choices, let’s talk about the limits — and power — of effective portfolio backtesting.

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Prioritizing Things That Matter

Updates

I know minimalism has a bad reputation for some people, as often it feels like the idea is built around stripping away the small things that make life fun to the point where the world just seems sterile. Personally I think that’s the wrong mindset altogether. It’s not about eliminating the happy belongings around you. Like preferring loyal pets over decorative pillows, it’s simply about prioritizing the things that actually matter to you and moving on from the things that don’t.

I apply that productive minimalist approach in many aspects of my life, from my home surroundings to the activities I choose to fill my time. And even without me pointing it out, you can probably see it reflected in Portfolio Charts. In an online world where popups, banner ads, and distracting videos are the norm, a clean visual slate for helpful data has always been important to how the site operates.

I’ve been working a lot recently on the mechanics of the site to streamline the experience, make some nice improvements, and cut a few unimportant things away. Some of them are obvious, while others are a bit more subtle. In the spirit of minimalism I’ll keep it short and sweet, but here are a few changes to be aware of.

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