In spite of the rather large negative returns for the average stock fund in 2001 (minus 11.9%), a negative 12.0% return for the S&P 500 index, and a negative 23.5% for the average Large Growth fund, our model portfolio returned minus 0.5% for the full year.
This represents our 2nd straight full year of double digit outperformance of the S&P 500. (See Newsletter 39 for our year 2000 results.) In fact, combining last year's positive 3.1% return with this year's minus 0.5, our overall recommendations are still a few percentage points ahead over the full 2 year period. Compare this with the exactly minus 20% total return over the last 2 years for the Vanguard 500 Index, which is designed to reflect the S&P 500 index results.
Naturally, we would have liked to see absolute results that would have advanced our year over year outcomes significantly, rather than just relative outperformance. But we fully accept that such a wish is not in keeping with the way investing down through the years works.
Some people claim they are smart enough to be able to completely get out of their higher risk investments and avoid a bad year or two of negative returns. If so, and they could do this without also missing many of the numerous times that various funds have surprised on the upside, they should consider becoming newsletter writers themselves and sharing their knowledge! The fact is that almost no one has ever been consistently able to make such timely exits over say a 10 or 15 year period. Any such success over a shorter period can statistically be shown to occur by luck alone among say a large number of people making such predictions.
The following table shows our model portfolio's performance during the last 6 months. We are also including our new allocations for 2002 which for the most part show very little change:
Fund | Morningstar Style | Previous | New Allo- | 3rd & 4th Qtr |
|---|---|---|---|---|
Vanguard Growth and Income | Large Value | 10 | 10 | -5.5% |
Vanguard Extended Market Index | Mid Cap Blend | 10 | 10 | -5.6 |
| Vanguard Windsor | Large Value | 20 | 20 | -0.2 |
Vanguard Small Cap Index | Small Cap Blend | 10 | 0 | -4.0 |
Vanguard Explorer | Small Cap Growth | 0 | 10 | -2.0 |
| TIAA-CREF Growth Equity | Large Growth | 5 | 5 | -8.7 |
Fidelity Low Priced Stock | Small Cap Value | 10 | 10 | +8.0 |
Vanguard International Growth | Foreign (Large Blend) | 10 | 10 | -5.6 |
Tweedy Browne Global Value | Foreign (Mid Cap Value) | 10 | 10 | -6.9 |
Vanguard Index Europe | Foreign (Large Blend) | 10 | 10 | -3.8 |
Vanguard REIT Index | Real Estate | 5 | 5 | +2.0 |
Fund | Morningstar | Previous | New Allo- | 3rd & 4th Qtr |
|---|---|---|---|---|
| Vanguard Short Term Corporate | Low | 25% | 35% | +3.6% |
Vanguard Inflation Protected Securities | Low | 30 | 15 | +1.3 |
| PIMCO Total Return Instit. | Medium | 25 | 25 | +6.8 |
| Vanguard High Yield | Medium | 20 | 25 | +1.0 |
Class | Previous | Current |
|---|---|---|
Stocks | 67.5% | 70% |
Bonds | 25 | 25 |
Cash | 7.5 | 5 |
Tom Madell, PhD