The Gone Fishin' Portfolio: Get Wise, Get Wealthy...and Get on With Your Life

The Gone Fishin’ Portfolio
Written by Chip Wood
Saturday, 16 May 2009
(Ed. Note: In our last issue of Wisdom’s Edge®, Chip Wood, editor of Straight Talk Newsletter, introduced you to Alex Green’s “Gone Fishin’ Portfolio.” In this issue, Chip outlines the entire portfolio – and gives you a unique way to run the portfolio on autopilot. Let’s jump in right where we left off.)
After two decades in the securities business, Alex Green is well aware that for most investors, the more they trade, the more they lose.  So his “Gone Fishin’ Portfolio” is built around investing for the long term.  Once you fund each segment, you rebalance the portfolio annually (to be precise, once every 366 days).  At that time, you sell enough of your winners, and buy more of the laggards, so that the percentage in each sector gets back to the original number.  One of the sweetest consequences of this plan is that you’re always being forced to buy low and sell high.
While the Gone Fishin’ portfolio may sound complicated, I can assure you, it’s not.  Establishing the portfolio takes less than an hour.  Rebalancing it once a year takes about 20 minutes.
Here is where Alex recommends putting your funds:
1. U.S. large-cap stocks, 15%.  These are the biggest, best-known companies in America, with a market capitalization (the value of all stock issued) of more than $5 billion.  When you buy a large-cap mutual fund or exchange traded fund (ETF), you become a part owner of companies like GE, Coca-Cola, IBM, and American Express.  Historically, these stocks have gained an average of 11% a year.  Use the Vanguard Total Stock Market Index (VTSMX).
2. U.S. small-cap stocks, 15%.    As the name implies, these are smaller companies – usually in the bottom 20% of the stocks listed on the New York Stock Exchange.  Their average return over the years is better than the large-caps, but with more volatility.  Use the Vanguard Small Cap Index (NAESX).
3. European stocks, 10%.  While the U.S. stock market is the best known in the world, it’s important to remember that there are more companies outside the U.S. than are based here.  Here’s the first of three areas outside our borders where Alex recommends you invest.  Use the Vanguard European Index (VEURX).
4. Pacific Rim stocks, 10%.  The focus here will be on large-cap stocks in Japan, Australia, Hong Kong, and Singapore.  Use the Vanguard Pacific Index (VPACX).
5. Emerging market stocks, 10%.  These are the shares of leading companies in developing markets, such as Eastern Europe, Latin America, and Asia.  Use the Vanguard Emerging Market Index (VEIEX).
6. Real estate investment trusts (REITs), 5%.  These companies invest in commercial properties – shopping centers, hotels, office parks, and apartment complexes.  REITs avoid corporate income taxes by distributing more than 90% of their net cash flow to shareholders each year.  Use the Vanguard REIT Index (VGSIX).
7. Precious metals mining stocks, 5%.  Here you’ll be investing in the world’s largest gold mining companies.  Many also produce silver, platinum, and industrial metals.  Use the Vanguard Precious Metals and Mining Fund (VGPMX).
8. Short-term corporate bonds, 10%.   Corporate bonds are less risky than stocks, because they have to be paid off before any money is given to shareholders.  Short-term bonds usually earn less than long-term bonds, but their shorter maturities also mean they have less volatility.  Use the Vanguard Short-Term Investment Grade Bond Fund (VFSTX).
9. High-yield corporate bonds, 10%.  These are sometimes called “junk” bonds.  Because they do not qualify for investment-grade ratings, they pay higher rates of interest.  They also have higher levels of defaults, but with a large fund, that risk is sharply diminished.  Use the Vanguard High-Yield Corporate Fund (VWEHX).
10. Inflation-adjusted Treasury bonds, 10%.  Treasuries are considered the safest investments of all, because the U.S. government has never defaulted on them.  As a result, the interest rate is low.  But these have the added advantage of the principal going up when the Consumer Price Index does – something that’s virtually guaranteed to happen.  Use the Vanguard Inflation Protected Securities Fund (VIPSX).
So there you have it – a portfolio that’s designed to be aggressive enough to boost your long-term returns, yet uncorrelated enough to smooth out the inevitable bumps along the way.  Allocating your assets among these 10 funds should not only keep your returns high, it should keep your nights restful, too.  As Alex says, the Gone Fishin’ portfolio is all about getting wise, getting wealthy, and getting on with your life.
Now, before contacting the Vanguard Group and moving all your assets (or even a significant portion of them) into these 10 funds, do yourself a favor.  Buy a copy of Alex’s new book and read it.  You can order a copy of The Gone Fishin' Portfolio: Get Wise, Get Wealthy...and Get on With Your Life (Agora Series) by clicking on the title.
By the way, Alex says the portfolio works just as well with ETFs.  In fact, he devotes a whole chapter to “The ETF Alternative.”    Oh, and be sure to check out the chapter right before that one – “How to Legally Stiff-Arm the IRS.”  As you’ll see, a dollar saved in taxes can turn into three or four (or more) down the road.
Alex says, "The Gone Fishin’ portfolio gives you an excellent opportunity to increase your wealth. But it guarantees you more time to devote to the people and pastimes you love. Perhaps that is what recommends it most."
(Chip Wood is the editor of Straight Talk e-newsletter. You can subscribe to his free newsletter by following this link.)