The Unbelievably Simple Investment Strategy That Consistently Makes Money In Good And Bad Times

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Photo: Vanguard

Would you believe there is a simple two asset portfolio that has generated equal real returns during recessions and expansions since 1926?In a new New York Times article, reporter Jeff Sommer points to a recent Vanguard study titled Recessions And Balanced Portfolio Returns.

The study analysed broad stock market and high-grade corporate bond index returns from 1926 to 2009.  It also separated returns during recessions and expansions, as identified by the National Bureau of Economic Research (NBER).

Vanguard found that the average annual real returns for a portfolio consisting of 50% stocks and 50% bonds during recessions and expansions were 5.26% and 5.59%, respectively.  Statistically equivalent returns.

It’s not surprising that Vanguard would promote such a low-maintenance, low-cost solution. After all, its founder Jack Bogle is the father of the index fund.  However, Vanguard isn’t the only one pointing to this boring strategy.  Last month, Goldman Sach’s Dominic Wilson also identified a portfolio of just stocks and bonds as an easy way for investors to navigate through tough times.

This simple stock-bond allocation is both low maintenance and consistent.  Well…it’s consistent on a historical basis.

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