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Saturday, March 30, 2013

Performance - 1st Quarter 2013

Source: Capital Pixel
My favorite investment chart is the BlackRock 20-year sector performance.  It details the relative ranking of asset classes as well as the performance of an easily replicated low-cost diversified portfolio comprised of 65% stocks, 35% bonds.  The portfolio returned 12.2% over the 12 months ended 12/31/2012 and 7.9% on an average annualized basis over the past 20 years.

The diversified portfolio allocation is an appropriate benchmark for individuals in their 40s and even early 50s, depending on risk tolerance.  The table contains sufficient data, however, to construct a benchmark for any specific allocation and, in fact, the allocation can be changed over time--as it should be as the individual ages.

Voluminous data from unbiased academic studies have been presented over the years showing that a diversified portfolio of low-cost funds outperforms upwards of 70% of active managers over the longer term after all costs are taken into account.  These studies cover various time periods, countries, asset classes, and investment methodologies.  In line with this data, the low-cost diversified approach warrants consideration as a benchmark for investors.  It shouldn't go unnoticed that the approach economizes on the investor's time.

Here is an update showing the approximate performance of the diversified portfolio for the 1st quarter of 2013:

Return (%) 3 months ended 3/31/2013
Expense Ratio
AGG  (Barclay’s Aggregate Bond Index)
EFA (EAFE Index)
IWM (Russell 2000)
IWF (Russell 1000 Growth)
IWD (Russell 3000)

The overall return of the diversified portfolio was approximately +6.5% over the first 3 months of the year.

Disclosure:  This post is intended for educational purposes only.  Past performance is not indicative of future performance.  Individuals should consult a professional or do their own research before making investment decisions.


  1. A nice first quarter..... almost looks like a full year's return.

  2. Hello, I just read Andrew Hallam’s book and I want to get started in investing however I am torn between going with a company like Vanguard or sticking with the military's TSP program. I am 25 years of age and currently serving in the US Military. The Military TSP has some incentives and downfalls. First off you have the IRS limit similar to the 401(k) on how much you can contribute annually, due to the tax deferment options. The TSP is limited to 6 funds, G-Fund, F-Fund, C-Fund, S-Fund, I-Fund and L-Fund.

    G-Fund-Short term Non-marketable U.S. Treasury Securities
    F-Fund-Tracks the Lehman Brothers Bond Index
    C-Fund-Large Company U.S. Stock fund that tracks the S&P 500
    S-Fund-Medium and Small Company Stock fund that tracks the Wilshire 4500 Index
    I-Fund-International Stock fund that tracks the EAFE Index
    L-Fund-Divercified amongst the G,F,C,S and I funds.

    You are allowed to equal your contributions to whatever funds you set up however you are not allowed to withdraw your money or sell you funds completely. You can only take out loans up to $50,000 before you reach the age of 70.5 then you are allowed to take the funds out or start receiving an annuity. You can no longer contribute if you are not in the service but your money stays in the TSP and can still be managed I believe. They also charge a .028% fee but have charged up to .102% in 2003.

    Lastly I read an article about TSP and leaned something I did not know before and they do not tell us from it.

    Initially from that article you can pick up on a few things, but it is the comments that really revealed some information about TSP.

    First off the TSP program isn’t run by the government, it is run by BlackRock Institutional Trust Co. Secondly, as one guy put it, “I believe the main point of the article is that Blackrock may be ripping off the shareholders a little bit by not returning 100% of the fees received from the hedge funds that are borrowing the shares." Overall I am weary on the TSP program offered and I was wondering your thoughts on this matter?

    1. I am a fan of TSP. It offers the right funds at the lowest cost. BlackRock manages the funds, not the program. Because they lend shares it lowers costs - it isn't "ripping off" participants.
      If you saw some of the 401 (k)s managed by insurance cos. and the fees they charge I believe you would embrace the TSP.

    2. But if someone does not stay in 20 years they cannot pull the money out. Even if someone does stay in 20 years in the military, they lose the chance to continue contributing to the TSP which can hinder future progress.