A truly enduring financial home does not simply have strong backtested walls but also a solid intellectual foundation. These articles get into the detailed origins of the various portfolios, explore the ideas behind modern portfolio theory, and generally delve into the nuts and bolts of how and why intelligent asset allocation really works.
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Related Commentary
Catching a Golden Butterfly - One of the most common mental hurdles to overcome when researching asset allocation is the siren call of maximum returns. Nobody likes the feeling of leaving potential money on the table. Combine that with a bit of accurate but out-of-context historical data, misinterpretation of assumptions, and “common knowledge” that glosses over the details, and you naturally see a…
How Safe Withdrawal Rates Work - After publishing a few tools and articles based on safe withdrawal rates, one of the most common questions I’ve seen so far is some iteration if this: Obviously higher returns support higher withdrawal rates. That’s why I invest in 100% stocks! How can a lower-return portfolio possibly support higher withdrawal rates than a higher-return portfolio? I admit…
How to Build a Portfolio One Asset at a Time - My single favorite toy as a child really wasn’t a single toy. It was my giant bucket of LEGO accumulated over many years. The beauty of LEGO is that the combinations are absolutely limitless and the things you can build with them are constrained only by your imagination. Well… and access to all the right pieces. You see, when building…
The Ultimate Portfolio Guide for All Types of Investors - What does the historically best portfolio with the ideal balance of risk and return look like? Ask that same question to different people and you’re likely to get not only different answers but also completely different paths to get there. Your investment-savvy sibling might look up the long-term average returns for a few assets or funds and pick the…
The Theory Behind the Golden Butterfly - Perhaps because of how prominently it features in the Portfolio Finder, I’ve noticed a great deal of questions and conversations about the Golden Butterfly portfolio of late. Rather than scatter my thoughts around the internet, I realized it might be best to provide a centralized synopsis of how and why it works so that everyone can benefit.
Some Portfolios Are More Trustworthy Than Others - Interviewing contractors to work on your home is an interesting exercise in managing expectations. Purchasing a product where you know exactly what you’re getting ahead of time is a lot different than purchasing a service where the end result can never be fully appreciated until the work is complete. Who you choose to do the work thus…
Black Swans And The Larry Portfolio - In the late first century, a Latin poet named Juvenal described something thought to be unlikely as “a rare bird in the lands and very much like a black swan”. At the time, black swans were thought to not exist at all and the idea was preposterous. The clever turn of phrase was both memorable and…
The 7Twelve Portfolio And The Power Of Broad Diversification - I once knew a guy who was really into woodworking. One of the more fascinating things about him was that he not only made his own furniture but also was quite proud of his collection of hand-made woodworking tools. I once asked him why he preferred those tools to mass-produced alternatives. Among several reasons, “They do…
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Recommended Reading
The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk — Bill Bernstein’s thorough and insightful text on modern asset allocation concepts is both thoughtful and innovative and is guaranteed to change the way you think about investing. His work on Efficient Frontiers is the inspiration for my own efforts with the Portfolio Finder.
Triumph of the Optimists: 101 Years of Global Investment Returns — Elroy Dimson, Paul Marsh, and Mike Staunton present a terrific history of stock markets around the world. Complete with diligent attention to detail and helpful charts, this is perhaps the single best guide to the history of global markets and skillfully illustrates the importance of diversification.
Irrational Exuberance — Robert Shiller masterfully explains the many factors that influence market prices, while dismantling the common conception that markets are inherently rational. While not directly about portfolios, the idea that markets are irrational may alter your perceptions towards diversification.
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Portfolio Explanations
7Twelve Portfolio — 7Twelve: A Diversified Investment Portfolio with a Plan by Craig Israelsen
All Seasons Portfolio — MONEY Master the Game: 7 Simple Steps to Financial Freedom by Tony Robbins
Coffeehouse Portfolio — The Coffeehouse Investor by Bill Schultheis
Golden Butterfly — The Theory Behind The Golden Butterfly
Ivy Portfolio — The Ivy Portfolio by Mebane Faber
Larry Portfolio — Reducing The Risk of Black Swans by Larry Swedroe and Kevin Grogan
Merriman Ultimate — The Ultimate Buy and Hold Strategy by Paul Merriman
No-Brainer Portfolio — The Intelligent Asset Allocator by William Bernstein
Permanent Portfolio – The Permanent Portfolio: Harry Browne’s Long-Term Investment Strategy by Craig Rowland and J. M. Lawson
Rick Ferri Core Four — All About Asset Allocation by Rick Ferri
Swensen Portfolio — Unconventional Success: A Fundamental Approach to Personal Investment by David Swensen
Three-Fund Portfolio — Bogleheads Wiki (also see this thread by Taylor Larimore)
Total Stock Market — He’s not exactly the originator, but JL Collins offers a detailed argument for just putting your money in a TSM fund
