Double the Gain of the Morningstar Bucket Portfolio - 2

Nov 08 10:11 2018 Print This Article

Morningstar’s ‘Bucket Portfolio’ is typical of so-called Lazy Portfolios — static investing strategies that never change the percentages allocated a set of index funds. Fortunately, with one easy fix, we can add an amazing 3½ percentage points to the annualized return of Morningstar’s portfolio. The answer demonstrates a basic use of the ‘momentum factor’ — a rule that economists have proven in hundreds of peer-reviewed studies.

This column is Part 2. Part 1 appeared on Nov. 6, 2018.

The graph above shows a 45-year simulation of the performance of Morningstar’s “Aggressive Bucket Retirement Portfolio.” As explained in my previous column, this investing strategy for 401(k) plans, IRAs, and brokerage accounts holds nine mutual funds in specific percentages at all times.

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