There is a post on Seeking Alpha about the portfolio put forth by Marvin Appel in his book. I touched on this once before.
The portfolio calls for;
- S&P 500 20% (SPY)
- REITs 20% (ICF)
- Small Cap Value 10% (IWN)
- Investment Grade Bonds 30% (AGG)
- Cash 30%
Clearly, as with any type of all weather concept, there are gaps but there are positives too. As some of the comments on the SA post note there is no foreign exposure and no natural resource exposure. I have not read the book but the post gives me the impression than these segments of the market are covered elsewhere in the book than from this one excerpt.
A positive is the recognition that small cap value is an important asset class and clearly anyone could implement this and rebalance it. I wonder if the large reliance on REITs because of how they have performed in recent times might be a mistake going forward. I think 20% in something this narrow is a lot. It is much more exposure than I have ever thought about using and as some readers have pointed out recently, REITs are looking pricey the most historical measures.
The yield of this mix is 1.95% (per Morningstar) which is not that high given only 30% is in stocks (here I am excluding the REITs). I am not sure if that number takes in the yield from cash or not. If not, assuming 5% on the $30,000 the overall yield would then go to 3.45%. Again, only 30% is in regular equities so the yield strikes me a low. Morningstar also says the mix has 55% in financials which if correct (and it may not be) is very high, and so is underweight everything else.
Generally I think simple is better but I am wary of too simple. None of us can know what will become of things like social security or Medicare (and I concede nothing bad may happen here), will we have some sort of economic collapse in the US or will the next big boom allow the country to grow out of all the various deficits and short comings (certainly this is not impossible)?
These things are beyond our control so it makes sense to focus on what is in your control which is your savings rate and taking an active role in the management of your portfolio (here this can mean doing it yourself or hiring someone).
From what I can tell this mix is not forward looking, it appears to be based on how these assets classes have done in the past. I would not be willing to bet the future of my financial security solely on a strategy that has worked well in the past. The belief in a more proactive approach might be more of a philosophical thing but markets all evolve. I think history is important to understand and incorporate into what is hopefully a forward looking analysis.