It could be called crazy.
It could be called genius.
Perhaps you could call it a bit of both.
We’re talking about a simple portfolio that absolutely anyone could follow in their own 401(k) or IRA or retirement account. Low cost, no muss, no fuss. And it’s managed to do two powerful things simultaneously.
It’s beaten the standard Wall Street portfolio of 60% U.S. stocks and 40% bonds. It has beaten them not only last year (which was an amazing 7 percentage point), but also for half a century.
And it’s done so with way less risk. Fewer upsets. Fewer disasters. And no “lost” decades.
In 2022, the 50th anniversary was celebrated.Th year of this unheralded portfolio, which is termed “All Asset No Authority,” and which we’ve written about here before.
It’s the brainchild of Doug Ramsey. He’s the chief investment officer of Leuthold & Co., a long-established fund management company that has sensibly located itself in Minneapolis, a long, long way away from Wall Street.
AANA is extremely simple, yet surprisingly complex and has been remarkably durable. It consists simply of splitting your investment portfolio into 7 equal amounts, and investing one apiece in U.S. large-company stocks (the S&P 500
), U.S. Small-Company Stocks (The Russell 2000
), international stocks developed (the Europe Australasia Far East or EAFE Index), gold
Commodities, U.S. real estate investment trusts (REITS) and 10 year Treasury bonds
It was Ramsey’s answer to the question: How would you allocate your long-term investments if you wanted to give your money manager no discretion at all, but wanted to maximize diversification?
AANA covers an array of asset classes, including real estate, commodities and gold, so it’s durable in periods of inflation as well as disinflation or deflation. And it’s a fixed allocation. The money is distributed equally among the 7 assets. Once a year, you rebalance to bring them back to the same weights. And that’s it. The manager—you, me, or Fredo—doesn’t have to do anything else. They are not permitted to do any other. They do not have any authority.
AANA did way better than the more usual Wall Street investments during 2022’s veil of tears. While it ended the year down 9.6%, that was far better than the S&P 500 (which plunged 18%), or a balanced portfolio of 60% U.S. stocks and 40% U.S. bonds, which fell 17%.
The Nasdaq composite
? Down by a third
Crypto? Er, let’s not talk about that.
Last year’s success of AANA is due to two things, and them alone: Its exposure to commodities, which were up by about a fifth, and gold, which was level in dollars (and up 6% in euros, 12% in British pounds, and 14% when measured in Japanese yen).
Ramsey’s AANA portfolio has underperformed the usual U.S. stocks and bonds over the past decade, but that’s mainly because the latter have gone through a massive—and, it seems, unsustainable—boom. AANA has not experienced a loss in ten years over its 50-year history. AANA has made respectable returns, regardless of whether it was in the 1970s or 2000s as Wall Street struggled.
Since the start of 1973, according to Ramsey’s calculations, it has earned an average annual return of 9.8% a year. That’s about half a percentage point a year less than the S&P 500, but of course AANA isn’t a high risk portfolio entirely tied to the stock market. The better comparison is against the standard “balanced” benchmark portfolio of 60% U.S. stocks and 40% Treasury bonds.
Since the start of 1973, according to data from New York University’s Stern business school, that 60/40 portfolio has earned an average compound return of 9.1% a year. That’s less than AANA. Oh, and this supposedly “balanced” portfolio fared very badly in the 1970s, and badly again last year.
You can (if you want) build AANA for yourself using just 7 low-cost ETFs: For example, the SPDR S&P 500
iShares Russell 2000
Vanguard FTSE Developed Markets
Abrdn Physical Gold shares
a commodity fund such as the iShares S&P GSCI Commodity-Indexed Trust ETF
The iShares 7-10-Year Treasury Bond ETF
Vanguard Real Estate ETF
This list is only an example. There are competing ETFs in each category, and in some—such as with commodities and REITs—they vary quite a lot. GSG follows Ramsey’s particular commodity index in its calculations.
There are many worse investment portfolios out there, and it’s a question how many are better. AANA will perform worse than regular stocks and bonds during a boom bull market, but it will do better in a lost ten years.
Ramsey offers an interesting twist for those who are interested. Ramsey’s calculations show that, over the past 50 year, the smartest investment to make was to choose the asset class that had performed the best during the 12 months prior. He calls that the “bridesmaid” investment. Since 1973 the bridesmaid has earned you on average 13.1% a year—a staggering record that trounces the S&P 500. Last year’s bridesmaid, incidentally, was terrible (it was REITs, which tanked). But it wins every year, and wins big.
If someone wants to take advantage of this simple twist, you could split the portfolio into 8 units, not 7, and use the eighth to double your investment in the bridesmaid asset. That would be gold for 2023, which was behind commodities last year but broke even.
Crazy? Genius? For anyone creating a long-term portfolio for their retirement there are certainly many worse ideas—including many embraced by highly paid professionals, and marketed to the rest of us.