The Goal of This Book

FINDING the right investment portfolio is like finding true love. You spend time learning about yourself, exploring your options, and figuring out what really fits you. What works for someone else might not work for you – and that’s okay. You’re unique, and your portfolio should reflect that. It’s not about finding the “perfect” portfolio for everyone. It’s about finding the one that’s perfect for you.

In How I Invest My Money, Josh Brown, CEO of Ritholtz Wealth Management, offers a valuable piece of advice: “One major life lesson I’ve learned over the years is to never argue the merits of my own portfolio with anyone else.” He’s absolutely right. Once you’ve found your perfect portfolio, the only person you’ll regularly need to justify it to is yourself – and maybe your spouse, especially if things go south and a portfolio “divorce” starts to sound necessary.

The goal of this book is to help you find your perfect portfolio and hopefully avoid some costly portfolio “divorces” in the process (and certainly any real ones). At one time or another I’ve married all the portfolios in this book. I’ve studied them for decades and discovered their pros and their cons.

This book will:

1. Discuss the essential principles for sound portfolio construction.
2. Analyze specific portfolio strategies with the goal of outlining the benefits and drawbacks as they might relate to you personally.
3. Provide actionable outlines for how these portfolios might be implemented and maintained.

WHAT THIS BOOK IS ABOUT

This book is about how to construct a portfolio that works for you. We begin by outlining the general principles for portfolio construction and the goals that investors should have during this process. We then explore many of the most popular strategies that exist. We tear them open, discussing their strengths and weaknesses and why they may or may not be a good fit for you. Remember, this is all about you. I am here as an independent analyst providing objective critiques of these strategies to help you find the portfolio (or portfolios) you’re most compatible with. In the end, you might find that you like one or even many of the portfolios. But the overarching goal is to help you find your perfect portfolio.

WHO IS THIS BOOK FOR?

This book is for anyone and everyone who wants to start constructing a sensible portfolio that suits their needs and wants. Some of the portfolios are complex and some of them are very simple. My goal is to provide a broad review of many differing styles knowing that all of you are different and unique. My hope is that both novices and sophisticated investors can utilize this book to learn about and broaden their understanding of how we can all find a perfect portfolio.

HOW THIS BOOK IS STRUCTURED

This book is broken up into two specific parts. Part 1 deals with background and some principles that I believe are essential for understanding the portfolios discussed in the book. In Part 2, we dive into different portfolio strategies and how they work. If you would prefer to study the portfolios only, I recommend skipping Part 1.

Within Part 2, I’ve organized the portfolio discussion sequentially, starting with the simplest strategies and progressing to more complex ones. A sophisticated investor might find the early chapters too simplistic. And novice investors might find the later chapters too complex. My goal is to start with the broader basics and build the portfolios progressively so we can see how certain strategies differ from one another and can also be utilized together.

The reader might find that certain chapters aren’t pertinent to them. Maybe you don’t like gold, bonds, managed futures or other specific assets. There’s nothing wrong with that! And you might find that it’s useful to bounce around from chapter to chapter. Despite the metaphor within, this book isn’t a love story, so you don’t have to read it sequentially to understand the conclusions. This is all about you and your personal needs so navigate it how you prefer. Use this book as a reference guide. My goal is for the entire text to be a guide, but you might also find that only specific pieces are useful to you.

My hope is this book will shed some light on how these different approaches can help you find a portfolio you love and cherish, for better, for worse, through sickness and in health, for rich and for poor, but hopefully for rich and for richer.

DATA KEY

This data key will be useful throughout the book when we’re discussing how the different portfolios were assessed.

Real Returns: Inflation-adjusted annual returns. Inflation is accounted for using the Consumer Price Index (CPI).

Volatility: The standard deviation of returns.

Sharpe ratio: A measure of risk-adjusted returns that quantifies the amount of risk in achieving returns. 0.5–1.0 is considered average. 1.0–1.5 is considered above average and below 0.5 is considered below average.

Sortino ratio: A measure of risk that tries to improve upon the Sharpe ratio by more equally measuring upside and downside risk. 0.5–1.0 is considered average. 1.0–2.0 is considered above average and below 0.5 is considered below average.

Max drawdown: The maximum peak to trough downturn.

Max drawdown (post-1945): Market returns are often broken into two time periods due to the extreme volatility of the Great Depression and World War 2.

Ulcer index: A measure of how deep and how long a drawdown typically is. This ranges from 0–50. 0–5 is considered more stable, 5–10 moderately stable. 10–50 varies from stressful to extreme stress.

Market correlation: The correlation to the broad US stock market.

Where possible I use real-time fund data from existing funds instead of relying on hypothetical backtests. As a result of this you might notice that some of the performance analysis in this book does not go back as far as we’d like. And some of the time periods over which we analyze the portfolios are very different because the theoretical and real-time data differs depending on the assets and funds we analyzed. When I had to choose between more theoretical data versus less actual data, I tended to defer towards using the actual dataset if it went back 15–20+ years at a minimum and captured a high inflation (2021–2024) and large recessionary environment (2008–2011). Some datasets (like emerging market stock returns or bond aggregate data) are constrained by the fact that many of these indices did not exist before 1990.