OPINION: This portfolio would have turned an initial investment of $100,000 in 1970 to $47.7 million by the end of 2021, more than double the return of a 100% S&P 500 index portfolio.
Note to readers: This is an article I’ve written and updated annually since 1995. It presents what I believe is the very best way for long-term investors to build an equity portfolio.
This results in Portfolio 2, which is still 90% in the S&P 500. Assuming annual rebalancing , the 52-year compound return rises to 11.2%. That might not seem like much, but this small step would have turned that $100,000 investment in 1970 into $25 million. To create Portfolio 4, we move another 10% of the portfolio into U.S. small-cap value stocks, which historically have been the most productive of all major U.S. asset classes. This boosts the compound return to 11.7%, enough to turn that initial $100,000 investment into $31.7 million — with more than two-thirds of the portfolio still in the S&P 500.
To create Portfolio 6, we shift another 40% of the portfolio to four more important asset classes: international large-cap blend stocks, international large-cap value stocks, international small-cap blend stocks and international small-cap value stocks. Over the past 52 calendar years, this 10-part portfolio met all the asset-class predictions of academic researchers — and more than doubled the dollar return of the S&P 500.
Its only significant drawback is that it requires owning and periodically rebalancing 10 component parts. Relatively few investors have the time or inclination to do that.
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