The first portfolio if entirely invested in large U.S. stocks. This really is not an option for most investors…most simply want and need something more than just large U.S. stocks due to their volatility and risk. The Traditional Portfolio is among the most common portfolio for investors. It is sometimes called a 70/30 stock/bond portfolio with 70% in stocks, 60% of which are U.S. stocks, and 30% in bonds. This has some diversification but it is limited.
The third and fourth portfolios include allocations to Everything Else which our research shows improves returns. The Better Diversified Portfolio is just 10% large U.S. stocks with the other 90% in Everything Else…all of the other asset classes discussed. Then the Super-Diversified Portfolio is similar to the Better Diversified but includes an allocation to our Patton Flex Strategy.
You can see the exact allocations of these portfolios as well as calculate returns for any desired time period via the this page on our site.
1972 – 1979: the ‘70s were a touch time for investors in large U.S. stocks. There was a major bear market in ’73-’74 and no long-term strong trends higher throughout the decade. The Traditional Portfolio did little to help during this period but those portfolios with meaningful allocations to Everything Else, the many other investment types, performed significantly better.
1980 – 1999: this was the longer bull market in history and large U.S. stocks soared. No other investments kept pace resulting in most diversified portfolios lagging behind…still producing strong returns but not as strong as large U.S. stocks. Our Flex Strategy, included in the allocation of the Super-Diversified Portfolio, did make a tremendous different during this period delivering superior returns.
2000 – 2009: this, again, was “The Lost Decade” when large U.S. stocks produced a slight negative return for the 10 years. The less diversified Traditional Portfolio delivered a margin gain during this decade while the two much more diversified portfolios did much better helped by their diversification into Everything Else.
2010 – 2019: following “The Lost Decade” in the previous 10 years when large U.S. stocks failed to deliver any gain, the cycle shifted and they have delivered the best returns when compared to Everything Else. During this period, the added diversification into Everything Else did not help a portfolio’s return as illustrated by the Better Diversified Portfolio’s return. The inclusion though of the Flex Strategy in the Super-Diversified Portfolio helped it deliver much better returns than the less diversified Traditional Portfolio.