How to simplify the Ultimate Buy and Hold and get higher returns

This is the second podcast in a series of what Paul Merriman thinks are "the most important investment information” the Merriman Financial Education Foundation updates annually. Paul starts with a quick review of the previous podcast, The Ultimate Buy and Hold Strategy Update 2021 regarding the 10 equity asset classes. For those who did not hear the previous, it will help to download 2 tables: Table 1a, which reflects returns of a 50/50 split between U.S. and international equity asset classes and Table 1b, which reflects the returns of a 70/30 split between U.S. and international equity asset classes. From these two tables investors can easily compare the impact of adding 9 different equity asset classes to the S&P 500. The following is the MarketWatch article that discusses these portfolios.

Paul moves on to the same 50/50 and 70/30 balance of U.S. and international, except the number of holdings are fewer... and in some cases creating higher returns due to the minimization of growth in the portfolio. See tables 2a and 2b. He makes the point that the original Ultimate Buy and Hold Strategy was not built to be the most profitable... but to exposed investors to similar risk as the S&P 500 along with meaningful high returns. If higher returns without regard to risk were the only limit, the portfolio could have overweighted value more than it does.

Paul then discusses the risk and return of two 4-Fund Combinations: The All U.S. and the 50/50 U.S. and International. Of particular note is that the returns and risk of the 4 Funds are almost the same as the 10-fund portfolios. This is not "earth shattering." as the exposure to small/large/value/growth is close to that in the 10-fund portfolios.

After helping investors find an easier path to expected returns, the objective is changed to finding a way to get higher returns by eliminating most of the growth holdings. In each case, these All-Value portfolios increase returns by .5% to 1% more. The impact on the total dollar growth is astounding for the All Small Cap Value portfolios, but likely beyond the risk tolerance for most investors. However, that doesn’t mean there isn’t a place for a portion of the portfolio.

The next podcast will focus on all of these different combinations of equity asset classes to see what happens to risk/return in an All-Equity portfolio as well as different combinations of equities and fixed income.