Rational Investing Portfolio
Detailed in the Work Less Live More book for long-term retirees, the Rational Investing Portfolio is designed to provide sustainable withdrawals with low volatility across a 40-year+ retirement horizon. 16 asset classes ensure wide diversification and exposure to most liquid financial securities markets to generate low-volatility returns a retiree can live on over several decades. Readers will find a full discussion including extensive historical testing, academic foundations for the portfolio and an early-retiree focused withdrawal strategy detailed in the Work Less Live More book.
FINANCIAL UPDATES FOR THE WORK LESS, LIVE MORE RATIONAL INVESTING (RIP) PORTFOLIO: 2006 to 2015 (previous history available in the book)
10-year compounded return 2006-2015: 5.4%
10-year compounded return after annual 4% withdrawals (5.1% in 2009**) and after adjusting for inflation: 1.2%
Annual Returns
2006 14.18%
2007 9.74%
2008 -22.26%
2009 23.99%
2010 13.73%
2011 -0.20%
2012 10.55%
2013 11.64%
2014 3.08%
2015 -3.12%
(historical data sources courtesy Modera Asset Management)
Asset Classes and percentages
US Large 12%
US Small 9%
Int'l Large 5%
Int'l Small 10%
Emerging 6%
ST Corp 4%
LT Treasury 4%
Int Term US 10%
Int'l Bond 12%
GNMA 5%
High Yield 4%
Oil & Gas 3%
Market Neutral 2%
Commodities 4%
Commercial Real Estate 5%
Private Equity 5%
the Sandwich Portfolio- Sometimes Less IS MORE:
8 Funds plus a Money Market Account
Portfolio Charts has included the Sandwich Portfolio in their roster of retirement-friendly portfolios. Valuable analytic tools for assessing how this portfolio compares to others.
The second portfolio from the book, designed to be simpler, has 8 asset classes and a money market fund, with all but one fund available through Vanguard (chosen as representative of, but by no means exclusively, the investing options suitable for long term retirees) This Portfolio has fewer of the less-correlated or esoteric 'alternative' asset classes.
FINANCIAL UPDATES FOR THE WORK LESS, LIVE MORE SANDWICH PORTFOLIO: 2006 to 2021 (previous history available in the book)
16 Year compounded return: 7.15%
Annual Returns
2006 14.7%
2007 7.58%
2008 -20.34%
2009 23.10%
2010 13.36%
2011 0.72%
2012 11.85%
2013 11.81%
2014 5.92%
2015 -0.51%
2016 6.50%
2017 15.32%
2018 -6.56%
2019 17.94%
2020 11.36%
2021 9.88%
2022 TBD
2023 TBD
(historical data source: Morningstar, Vanguard, and are net of fees)
This is the simple version of the Rational Investing Portfolio used throughout the Work Less Live More long term retiree planning in the books. It consists of the following 8 low-fee and readily available funds plus a Money market fund:
20% VFINX S&P500
8% VTMSX Tax Managed Small
6% VGTSX Total International Equity
10% VINEX Internat'l Explorer (small)
6% VEIEX Emerging Markets
30% VBIIX Intermediate Bond Index
11% BEGBX International Bond
5% VGSIX REIT Index
4% Money Market Fund
Updates on investment strategy from book, based on author’s personal adaptations over 20 years:
These allocations continue to be the same as those published in the book. The author personally continues to follow the full Rational Investment Portfolio (since 2003), though with changes outlined below.
First off he recognizes that since at least 2015 commodities and large foreign holdings have weighed on returns. The US economy has just been so powerful that other countries’ economies and markets have suffered in comparison. This is a historic shift and may not revert to mean in any meaningful way in our lifetimes.
For greater diversification the authore also has been investing in the hedge fund sector which he feels with judicious selection can be worth the high fees, (mostly just for credit market strategies as an alternative to bonds, during ten years when interest rates were so low) Starting in 2020 (still true as of late 2024) he holds almost no medium term bonds, US or foreign, opting instead for short-term treasuries for his fixed income holdings. Over the years he has also switched most investments from mutual funds to ETFs which he believes have significant advantages for the long term investor.
Since 2020 the author has shifted away from using the SP500 as a proxy for US Large and has cultivated instead a list of a dozen or so large US stocks which fill in the core of this allocation, along with other kinds of US Large ETFs, for instance VHT (Healthcare) VTI (Vanguard Total Market) VTV and VASVX. (Total Value and mid-cap Value). Reason for this is the lopsided, tech-heavy nature of the SP500.
Finally, and more actively, the author has become comfortable writing covered call options on highly appreciated long term holdings of large, liquid US corporate names. He uses a very low-risk, careful and moderate approach to covered call writing. He also occasionally writes put options for companies he would like to build a position in. This has provided additional option premium income approximately matching dividend income for the US large equity allocation.
Click here for a discussion of this portfolio and its performance on the early-retirement.org forums
** Note that these withdrawals correspond to the Safe Withdrawal Methods outlined in the book, which include a 95% Rule for smoothing out adjustments after asset values have fallen significantly. This was the situation in 2009 during which the 95% Rule indicated a 5.0% (Sandwich) and 5.1% (RIP) withdrawal be taken that year.
Also note that all returns here are based on the assumption of annual rebalancing of portfolios back to the target allocations on January 1 of each year, for ease of calculation. Individuals will of course choose different rebalancing and thus their performances may vary.