The Everything Portfolio
The Everything Portfolio
Putting together the optimal, easy-to-manage portfolio by looking at over a century’s worth of return data. It turns out that real estate is the cornerstone.
Investors want practical ways to boost their returns and reduce risk. Yet, they often overlook passive, diversified asset allocation strategies. By analysing return data for American stocks, bonds and real estate equity from 1890-2022, we can see what would have worked in the long run. It turns out that real estate is the top dog. On a risk-adjusted basis, it outperformed stocks and bonds. But by diversifying across all three asset classes instead of holding just one, investors would have significantly boosted their risk-adjusted returns. Looking forward, a simple mix of the three would be easy to manage and will likely do well.
Over the past 130 years, real estate equity (based on Robert Shiller’s index) has crushed both stocks (Shiller composite index) and bonds (10 year Treasuries) on a risk-adjusted basis. Real estate's Sharpe, the ratio of annual returns to volatility, was 1.2. That's twice as high as the Sharpe for stocks and 1.5 times that of …