In mid-April 2020, I wrote about all-weather or ‘permanent’ portfolios, designed specifically to perform well in good, but especially even in bad, market conditions. I played with the asset allocation of a number of permanent portfolios that are out there in the investing Google-sphere, and came up with one that performed exceptionally well when back-tested from 2019 to 2006. It’s called ‘The Comfy Armchair’.
The Comfy Armchair is constructed as follows: 35% US equities, 10% gold, 40% US long term treasuries, and 15% US medium term treasuries.
The back-testing results vs. other permanent portfolios as well as a Vanguard S&P 500 investor were very favourable.
The Comfy Armchair had a worst year of 2.65%, versus 37.02% for the index. The max draw-down was 12.58% versus 50.97%.
The compound annual growth rate was 7.76% for the Comfy Armchair versus 8.68% for the index. Very comparable end result, but a much less volatile way to get there!
A regular reader and friend of mine asked me how this portfolio had actually performed over the last few months of COVID19 induced volatility. He also wondered whether he could get a similar result by investing 90% in a one-stop, balanced asset-allocation ETF like VBAL, and simply adding a 10% allocation to Gold. Wow! Great questions. It intrigued me, so I went back to my trusty back-testing app at Portfolio Visualizer.
Question 1: Comfy Armchair asset allocation model versus the Balanced Index – Pandemic Performance
First, I simply ran the Comfy Armchair asset allocation versus the Vanguard Balanced Index, to see how it performed from January to April 2020 as a ‘pandemic portfolio’. The results were, for lack of a better word, incredible. For those four months, the Comfy Armchair had a positive 7.76% return, versus a loss for the balanced index of 4.08%. The maximum drawdown for the Comfy Armchair was 1.44%, versus 12.34% for the balanced index. Wow.
Question 2: Comfy Armchair ETF portfolio versus VBAL plus gold
Next, I ran a different back-test, using actual ETFs (instead of the theoretical sector allocations) for the Comfy Armchair, to compare against my friend’s suggestion of VBAL plus gold. I expected a close horse-race, but that’s not how it turned out in the end. The Comfy Armchair killed it versus VBAL/gold!
The Comfy Armchair had a positive return from January to April 2020 of 9.16%, versus a loss of 1.4% for VBAL/Gold (and a loss of 4.08% for the balanced index). The maximum drawdown was 0.0% for the Comfy Armchair, versus 9.65% for VBAL/Gold and 12.34 for the balanced index. The standard deviation numbers also tell the relative volatility story: 7.92 for Comfy Armchair vs. 21.30 for VBAL/Gold and 25.35 for the balanced index.
So hey, what would one conclude here? It would certainly seem that the Comfy Armchair portfolio is a solid, well-performing, low-volatility portfolio option. Through the back-testing, it’s shown its chops over the long term (2006 to 2019), as well as the first four months of 2020, where panicky markets, nervous investors and free-flowing government interventions suddenly became a ‘new normal’.
This is not to be considered as investment advice. As always, before making any new investments decisions or changes to your existing portfolio, please do your own full and due diligence, and consult with a professional and properly accredited financial advisor.
Hope that you enjoyed reading this post. Please leave a comment and let me know.