Scott Builds Four Portfolios with Four Different Strategies ($40k Experiment)
Digest
This podcast details an experiment involving four distinct investment portfolios, each seeded with $10,000 and tracked in real-time. The portfolios represent different strategies: 100% S&P 500 index fund (VOO), a 60/40 stock/bond allocation (VTI/BND), a risk parity approach diversifying across various assets like stocks, bonds, gold, and managed futures, and a market timing portfolio based on current high valuations, focusing on value stocks and REITs. Performance updates for these portfolios will be shared quarterly via newsletter. The episode also thanks the sponsor, Public.com, highlighting their platform and a 1% uncapped match offer for portfolio rollovers.
Outlines
Introduction and Portfolio Setup
The podcast introduces an experiment to track four distinct investment portfolios with real money, each starting with $10,000 in Public.com accounts. The goal is to compare their performance over time and determine the most successful strategy.
Portfolio Strategies: S&P 500, 60/40, and Risk Parity
The first portfolio is a simple 100% investment in the S&P 500 index fund (VOO). The second follows a traditional 60/40 stock-to-bond ratio, allocating $6,000 to VTI and $4,000 to BND. The third is a risk parity portfolio, diversifying across growth stocks (VUG), small-cap value (AVUV), bonds (VGIT, VGLT), gold (GLDM), managed futures (DBMF), and international stocks (IDMO, AVDV) to balance risk.
Portfolio 4: Market Timing Thesis and Valuation Concerns
The fourth portfolio is based on Scott's thesis that current market valuations are too high. It includes bonds (BND), REITs (VNQ), US value stocks (AVUV), and international value stocks (AVDV), with a plan to potentially shift back to the S&P 500 if valuations become more favorable. Scott expresses concern over metrics like the Shiller P/E ratio, price-to-sales, and the Buffett indicator.
Updates, Sponsor Thanks, and Platform Features
Portfolio updates will be provided quarterly via newsletter. The hosts thank their sponsor, Public.com, for their support and mention the 1% uncapped match offer for rollovers. Public.com is highlighted as a comprehensive investing platform for stocks, bonds, crypto, and AI-generated assets.
Keywords
Investment Strategies
Various approaches to investing, including passive index fund investing, 60/40 stock/bond allocation, risk parity, and active market timing. Each strategy aims to achieve different financial goals and risk tolerances.
S&P 500 Index Fund (VOO)
An exchange-traded fund (ETF) that tracks the performance of the 500 largest companies listed on stock exchanges in the United States. It's a popular choice for passive investors seeking broad market exposure.
60/40 Portfolio
A traditional investment portfolio allocation consisting of 60% stocks and 40% bonds. This strategy aims to balance growth potential from stocks with the stability and lower volatility offered by bonds.
Risk Parity
An investment strategy that allocates assets based on their risk contribution rather than their capital value. It aims to balance risk across different asset classes like stocks, bonds, and commodities to reduce overall portfolio volatility.
Market Timing
An investment strategy that attempts to predict future market price movements to buy low and sell high. This approach is often considered difficult and risky, as accurately timing the market consistently is challenging.
Valuation Metrics
Financial ratios used to assess the intrinsic value of an asset or the overall market. Key metrics include the Shiller P/E ratio, price-to-sales ratio, and price-to-book value, used to gauge whether an asset is overvalued or undervalued.
REITs (Real Estate Investment Trusts)
Companies that own, operate, or finance income-generating real estate. Investing in REITs allows individuals to invest in large-scale, income-producing real estate without directly owning or managing properties.
Value Stocks
Stocks of companies that are believed to be trading below their intrinsic value. Value investors often look for companies with low price-to-earnings ratios, low price-to-book ratios, and high dividend yields.
Public.com
An investing platform offering a multi-asset portfolio including stocks, bonds, options, crypto, and AI-generated assets, with features like a 1% uncapped match for portfolio rollovers.
Q&A
What are the four different investment portfolios being tested in this episode?
The four portfolios are: 1) 100% S&P 500 Index Fund (VOO), 2) a 60/40 stock/bond allocation (VTI/BND), 3) a Risk Parity portfolio with diversified assets, and 4) Scott's market timing thesis portfolio focusing on value and alternative assets due to high market valuations.
What is the purpose of the 60/40 stock/bond portfolio?
The 60/40 portfolio aims to balance growth potential from stocks with the stability and lower volatility offered by bonds. This traditional allocation seeks to provide a moderate risk and return profile.
Why is Scott creating a "market timing" portfolio?
Scott is creating this portfolio because he feels the current stock market valuations are too high and uncomfortable. His thesis is to invest in assets with potentially higher yields or lower volatility while waiting for the S&P 500 to become more fairly priced, with rules to shift back if conditions improve.
What is a Risk Parity portfolio and what are its components?
A Risk Parity portfolio aims to balance risk across different asset classes. This specific portfolio includes growth stocks (VUG), small-cap value stocks (AVUV), intermediate and long-term bonds (VGIT, VGLT), gold (GLDM), managed futures (DBMF), and international stocks (IDMO, AVDV).
What are some of the valuation metrics Scott is concerned about?
Scott is concerned about metrics like the Shiller P/E ratio being near all-time highs, high price-to-sales ratios, and the Buffett indicator (total market cap to GDP) being over 200%, suggesting the market may be overvalued.
Show Notes
In this episode of the BiggerPockets Money Podcast with Mindy Jensen and Scott Trench, Scott builds four different investment portfolios using real money, each account starting with $10,000 and employing different strategies. Scott invests in an index fund, a 60/40 stock-bond portfolio, a risk parity portfolio, and a unique actively managed thesis. Follow along as they discuss the rationale, mechanics, and expected outcomes of these investments.
NOTE: This episode is for educational and entertainment purposes only and is NOT professional investment advice.
Brokerage services provided by Open to the Public Investing Inc, member FINRA & SIPC. Investing involves risk. Experience of this investor may not be representative of other customers. Past performance does not guarantee future results, and investment values may rise or fall.
At Public earn an uncapped 1% bonus when you transfer your portfolio with: www.Public.com/BPM
Subscribe to the FREE 31 Day Challenge Starting on January 1st: www.biggerpocketsmoney.com/31days
Subscribe to our Weekly Newsletter: www.biggerpocketsmoney.com
Want to be a guest on the show? Apply here: https://biggerpocketsmoney.com/contact/
Get 50% Off Your First Year of Monarch by using code ‘Pockets’: https://www.monarchmoney.com/
Connect with Scott and Mindy:
Scott: https://www.instagram.com/scott_trench/
Mindy: https://www.instagram.com/_mindyatbp/
Follow BiggerPockets Money on Social:
Facebook: https://www.facebook.com/groups/BPMoney
Instagram: https://www.instagram.com/biggerpocketsmoney/
Learn more about your ad choices. Visit megaphone.fm/adchoices
Table of contents
United States
