Update: Lazy Portfolio Experiment

Exactly one year ago, we put my traditional IRA account (which represents just under 10% of our liquid assets) into a “lazy portfolio” consisting of just four ETFs. It was part experiment and part demonstration that investing isn’t really that hard if you don’t want it to be.

The experiment is a year old now and we haven’t checked in for six months, so that means it’s time for an update.

Lazy Portfolio Composition

For reference this portfolio is my traditional IRA account, which is always published live as account #2 in our liquid assets.

I think rebalancing this kind of portfolio once a year is plenty, but the funds are in an Interactive Brokers account which has low trading fees, but also charges minimum fees if there’s no trading. For this reason, I’ve elected to rebalance (or at least consider rebalancing) the lazy portfolio quarterly.

Your average nihilist passive index investor doesn’t need to do it that often, but oh well.

Here’s the current allocation picture compared to the goals (prices as of market close 06/28/18):

ETF

Asset Class

Shares

Price

Total Value

Allocation

Target

BND

Bonds (US)

116

$79.27

$9,195.32

19.85%

20%

VTI

Equities (US)

139

$140.33

$19,384.94

41.84%

40%

VXUS

Equities (exUS)

244

$53.60

$13,012.52

28.09%

30%

VNQ

Real Estate (US)

52

$81.25

$4,187.56

9.04%

10%

Cash

Cash (USD)

547.68

$1.00

$547.68

1.76%

0%

_

_

_

TOTAL

$46,328.02

100%

100%

The cash is accrued from dividends that have been paid, and the allocation percentages belie the wild ride that 2018 has been.

If you compare the values in this table to what they were six months ago, it looks like nothing has happened.

But if we follow the path in between our semi-annual data points, there was quite a bit of excitement. Equities shot up to and then corrected from the all-time highs set in January, while real estate dropped off and then recovered to some extent.  And of course bonds continue to creep downward as interest rates and inflation expectations rise.

None of these allocation percentages are terribly far off from their targets, but they are starting to creep out of range.

I’ll be trimming the VTI share count a bit and then using the proceeds plus the accrued cash to pick up some more VNQ and VXUS.

Comparison

Just for funsies I’ve decided to compare the performance of this “lazy portfolio” to my actively managed inherited IRA account (account #1 in the portfolio).

Since both accounts are held at Interactive Brokers, it’s pretty easy to compare them for a specific time period. I just run a custom MTM (mark to market) summary report for their starting and ending NAVs (net asset values), and boom there you have it.

So how is the manic trader doing compared to my couch potato persona?

Account

Starting NAV (06/28/17)

Ending NAV (6/28/18)

Gain/Loss

% Return

Annualized %

Lazy Portfolio

$43,518.01

$46,328.02

$2,810.01

6.46%

6.46%

Actively Managed IRA

$203,893.75

$223,008.74

$19,114.99

9.37%

9.37%

You may remember from the last update that I reported that I was trailing the nihilist approach by quite a bit in December.

Well about that…

One thing I forgot to include in that last report was the $4,100 required minimum distribution (RMD) withdrawal that came out in October 2017. If I had factored that in, I would have still been trailing the passive system, but not by nearly as much. (I should have shown a 6.55% –13.1% annualized– return for the six months ending in December.)

The NAV listed in the table above is corrected to include that RMD, and it’s not really close any more.

So that means I caught up to and handily passed the lazy portfolio in the second half of this measurement period.

Of course my active management process sells volatility through cash secured puts and covered calls, so I should expect to do well when volatility picks up. It’s nice to see that actually play out in real life.

Plus I’ve continued to maintain a pretty sizeable cash position (like between 30 – 60%) in the active account for most of this time, and my bond allocation is a lot higher due to my CEF portfolio.

Those two considerations make the out-performance even more impressive in some ways, but they also highlight the fact that trying to compare apples to oranges is pretty complicated.

I will not gloat TOO much that I am beating the passive strategy. The market is capable of making anyone look like a total idiot at any given time.

So there you go.

The lazy portfolio stalled in the first half of 2018. Volatility was up, so a strategy that sells volatility premiums did well. Not exactly groundbreaking revelations, but at least a little interesting right?

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