Now is a great time to update our model portfolio which invests in global stocks, bitcoin/gold, and cash.
Remember that our model portfolio is 40% global stocks, 10% bitcoin or gold, and 50% cash. This is for a person who makes $100K per year and has a portfolio of $500K (so they would invest $200K in stocks, $50K in gold or bitcoin, and $250K in cash).
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The Allocations
To be precise, here are the funds and allocations that we enter into a portfolio analysis tool:
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40% VTWAX (Vanguard Total World Stock Index Admiral). This is a low cost, passively managed fund that holds 10,000 stocks of companies from around the world.
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5% GBTC (Grayscale Bitcoin Trust). This tracks bitcoin.
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5% GLD (SPDR Gold Shares). This tracks gold.
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50% SGOV (iShares 0-3 Month Treasury Bond). Cash.
Performance Results
The right benchmark for this portfolio is the standard 60% stocks/40% bonds allocation which we will model with BGPIX (Blackrock 60/40 Target).
According to the Morningstar portfolio analysis tool, over the five year Jan 21 – Jan 26 period, our model portfolio outperformed the benchmark along every dimension:
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It has a higher annual return (10.5% vs 7.3%)
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It has a lower drawdown (15% vs 20.8%)
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It has a higher Sharpe ratio (0.87 vs 0.42)
But the higher returns are not the point. The point of this portfolio is to greatly reduce risk (which it does, as you can see from the 5 year stats) while maintaining some upside.
About VTWAX
Four important comments about VTWAX:
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It’s very important to invest in stocks from around the world, not just the stocks of the US or one country.
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In my view, it’s very important to stay invested in the stock market. Think of it this way: it is the best hedge against losing your job. When you lose your job (to AI or anything else), public companies benefit. This relates to the AI employment crisis many workers are facing today.
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It’s very important in today’s economy to be an owner of financial assets. Buying stocks is the easiest way for most people to do that.
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It is totally fine to use a fund other than VTWAX. Just make sure that it is low cost, passively managed, and owns global stocks (not just US).
Gold and Bitcoin
One comment about gold/bitcoin: This is a hedge against government stupidity and political turbulence. This is at 50+ year highs and is unlikely to get better in the near future. You can see how America’s trade war miscalculation is contributing to this volatility.
About Cash
Two comments about cash (SGOV):
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The standard advice is to keep six months of salary in an emergency fund. Because the current situation is so volatile, our model portfolio keeps 2.5 years in cash. You will need this cash in case AI takes your job and you need to move to another country. It is totally fine to look for alternatives to SGOV: CDs, a CMA, a savings account with a high interest rate, etc.
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The 50% in cash can be compared to the 40% in bonds in the benchmark portfolio. The cash in our model portfolio will have much lower risk in exchange for a lower return compared to the bond portfolio.
Key Takeaways
This model portfolio (40% global stocks, 10% gold/bitcoin, 50% cash) is designed to greatly reduce risk while maintaining some upside. Over the five year period from Jan 2021 to Jan 2026, it delivered higher returns, lower drawdown, and a better Sharpe ratio than the standard 60/40 benchmark.
The large cash allocation reflects the volatile nature of today’s economy and provides a safety net if you need to make major life changes.
Consider reviewing your own portfolio allocation to ensure it matches your risk tolerance and financial situation.