Dylan Grice suggests the Cockroach Portfolio: 25% cash; 25% government bonds; 25% equities; and 25% gold. What we can learn from the cockroach
Government bonds protect against deflation (provided your money’s invested in solid government bonds and not trash). Equities offer capital growth and income. And gold, as we know, protects against currency depreciation, inflation, and financial collapse. It’s vitally important to maintain holdings in each, in my opinion.
The beauty of a ‘static’ allocation across these four asset classes is that it removes emotion from the investment process.
I don’t really agree with this but I think it is an interesting read. And I do agree the standard stock/bond/cash portfolio model is not good enough.
I would rather own real estate than gold. I doubt I would ever have more than 5% gold and only would suggest that if someone was really rich (so had money to put everywhere). Even then I imagine I would balance it with investments in other commodities.
One of the many problems with “stock” allocations is that doesn’t tell you enough. I think global exposure is wise (to some extent S&P 500 does this as many of those companies have huge international exposure – still I would go beyond that). Also I would be willing to take some stock in commodities type companies (oil and gas, mining, real estate, forests…) as a different bucket than “stocks” even though they are stocks.
And given the super low interest rates I see dividend paying stocks as an alternative to bonds.
The Cockroach Portfolio does suggest only government bonds (and is meant for the USA where those bonds are fairly sensible I think) but in the age of the internet many of my readers are global. It may well not make sense to have a huge portion of your portfolio in many countries bonds. And outside the USA I wouldn’t have such a large portion in USA bonds. And they don’t address the average maturity (at least in this article) – I would avoid longer maturities given the super low rates now. If rates were higher I would get some long term bonds.
These adjustments mean I don’t have as simple a suggestion as the cockroach portfolio. But I think that is sensible. There is no one portfolio that makes sense. What portfolio is wise depends on many things.
I think something along the lines of this would make sense today for someone living in the USA (but I would vary it a fair bit depending on the person’s situation and it would change in different market conditions)
- 35% Total Stock Market Index Fund (VTSMX)
- 15% Total International Stock Index Fund (VGTSX)
- 10% Vanguard emerging markets fund (VWO), or something similar
- 20% high quality “dividend aristocrat” type stocks
- 10% REIT Index Fund (VGSIX) or direct real estate ownership
- 5% bonds
- 5% cash
I would likely go a bit higher for real estate with direct ownership. As the portfolio was approaching the time withdrawals would be made (retirement) I would want real estate investments to be substantially cash flow positive (and leverage to be limited – hopefully under 50%). I would like primary residence to be without a mortgage or with a very small mortgage.
If I was drawing substantial income from the portfolio I would likely increase cash to at least 3 years of projected need (though even this gets a bit fuzzy as adjusting for expected interest and dividends makes sense to me).
I’m willing to include dividend stocks that don’t meet the dividend aristocrat rules but are similar: (ABBV, INTC even AAPL). I would consider including a bit in pipeline MLPs such as OKS (higher current yields but likely less growth).