Good reads from around the Web.

More respectable readers may not know about the “date a stripper” desperation aspiration that permeates the darker corners of the modern male psyche, just as surely as some women still search for their fantastical Mr Darcy.

WHY WAIT? For just $29.99 plus 17 easy installments of $7.19 a month, you can gain access to top tips and videos from an aging Lothario with a badly fitting hairpiece who’ll reveal how to make a professional naked lady your own!

Now I’ve got nothing against strippers. And as a full-blooded – if irredeemably bookish – male, I get the superficial appeal of coming home to one, too.

But I’ve always thought it must be pretty tiresome when your other half pays for her share of the bills in sweaty £10 notes. Not to say competitive, when she’s receiving half a dozen marriage proposals a night.

This week though I discovered an exotic dancer after my own heart – one for whom I might be prepared to overlook the downsides.

Tara Mishra, a 33-year old stripper from the brilliantly named Californian town of “Rancho Cucamonga” has been given $1 million back by police who mistook her stash for drug money.

That’s quite a sum for anyone to have amassed by their early 30s. But I’m not a mere gold digger – it is more how she got her $1 million that impresses me.

Yahoo reports that Tara:

…began putting aside her earnings when she started dancing at age 18… The money was meant to start her business and get out of the stripping business…

I presume the cops who pulled over a car and discovered $1 million bundled together with hair bands could not believe anyone could legitimately amass that sort of money by 33, let alone someone in her line of work.

But I recognise a kindred spirit when I see one.

I just wish Tara was a reader of Monevator. There are better places to invest your life savings than into a new nightclub with friends, and better ways to transfer your money than in the boot of a rented car.

In fact, the use of cash suggests Tara hasn’t even got a back account. Compound interest could have got her to her target years earlier, even if she’d kept her savings in a cash deposit account.

Tara’s plans remind me of those of another profession with a short, lucrative shelf-life – sportsmen and women, who often lose the lot when they leave the field.

Risky business

Perhaps $100,000 would be a good amount for Tara to gamble on her own business. The rest could go into a well-diversified passive portfolio.

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The lazy portfolios are the blazing beacons of passive investing. Once you’ve absorbed all the advice and theory you can stand about risk, cost and diversification, you’re still left with one crucial question:

“What does a simple, low cost, diversified portfolio look like?”

And that’s where the lazy portfolios shine a light. They’re rough-and-ready model portfolios designed by some of the champions of passive investing. Think of the lazies as a show home – a useful source of ideas for building your own portfolio.

A lazy portfolio’s standout features are:

• Simplicity

You only need a few funds to diversify across the key asset classes. This cuts costs and keeps the portfolio manageable.

• Low maintenance

You rebalance your funds occasionally, but otherwise leave them to make like an oak tree and grow. Novice investors can start with a very simple portfolio and add new funds from time to time, to further diversify.

• Low cost

Passive investors use cut-price index funds and Exchange Traded Funds (ETFs) to prevent high fund charges gobbling up their returns.

• Risk control

Every lazy portfolio sticks a hefty chunk into government bonds. The designers are drawing attention to the power of bonds to cushion your portfolio from equity market crashes. Your eventual allocation to bonds will depend on how much risk you can handle.

• No silver bullet

The lazy portfolios show there’s more than one way to cut the cake. Different portfolios suit different needs, mindsets and goals. But the truth is they will all put you in roughly the same ballpark. There’s no need to agonise over every percentage point split between asset classes.

You don’t need to pay for black box analytics to spit out some fully personalized “mean variance optimised, risk-calibrated” portfolio. You can just keep things simple and do it yourself.

Dirty Harry Vs Juliet Bravo

The lazy portfolios you’ll read about on the Internet and in books are mostly US orientated. But Monevator has converted them for UK readers using index funds and ETFs chosen from our market.

Cost rules our decision making. Every fund is selected on the basis that:

1. It fits the original investment category.
2. It’s generally the cheapest choice available by Ongoing Charge Figure (OCF) and any other upfront fund fees that apply.1

Translator’s notes

Stars and Stripes flavoured lazy portfolios are skewed towards domestic equities. Historically, American investors have been heavily biased towards the home team, and that makes a certain sense given the size, dynamism, and diversity of their domestic market.

UK investors may want to allocate a greater percentage of their equity allocation internationally, given that UK plc only accounts for about 8% of global market cap and that the FTSE All-Share and FTSE 100 are more concentrated than US equivalents.

When it comes to bond funds, we’ve chosen to make our UK picks less diverse. The US portfolios tend to use a Total Bond Market fund, split about 70% into US Government bonds and 30% into Corporate bonds.

In the UK, Total Bond Market funds are as common as apologetic bankers, so I’ve chosen to use UK Government bond trackers instead.

Why? Well firstly, we’re dealing in lazy portfolios. Secondly, bonds are meant to provide you with some protection against equities being hammered when markets are stressed. Government bonds are less correlated with equities than corporate bonds, and so more likely to do the job.

US lazies often tilt towards value and small-value equity funds. Historical evidence suggests that investing in downtrodden companies of this kind can juice your returns – in exchange for an extra dose of risk, of course.

Yet again the UK market responds with a shrug of the shoulders. There are no corresponding value and small-value trackers over here. The closest proxies are high-yielding dividend funds. Value equities by their very nature tend to pay out a good yield, so many of them are scooped into dividend funds. It’s an ill-fitting suit at best, but it’s what we’ve got.

Finally, for some authentically British home-cooking we’ve rustled up a version of  Tim Hale’s Home Bias – Global Style Tilts 4 portfolio.

Tim Hale is the only British commentator I know of who stands comparison to the black belts of US passive investing. I’d recommend his book to any UK investor.

Okay, let’s go!

1. Allan Roth’s Second Grader Portfolio

Asset class	Asset allocation	Fund name	OCF
Domestic equity	60%	Vanguard FTSE UK Equity Index	0.15%2
Developed world	30%	Vanguard FTSE Dev World ex-UK Equity Index	0.3%
Government bonds (Gilts)	10%	Vanguard UK Government Bond Index	0.15%

Very simple and very aggressive with a 90% equity allocation. One for the young and the brave.

2. David Swensen’s Ivy League Portfolio

Asset class	Asset allocation	Fund name	OCF
Domestic equity	30%	Vanguard FTSE UK Equity Index	0.15%3
Developed world	15%	Vanguard FTSE Dev World ex-UK Equity Index	0.3%
Emerging markets	5%	BlackRock Emerging Markets Equity Tracker D	0.28%
Property	20%	BlackRock Global Property Securities Equity Tracker D	0.28%
Government bonds (Gilts)	15%	Vanguard UK Government Bond Index	0.15%
Government bonds (Index-linked)	15%	Vanguard UK Inflation-Linked Gilt Index	0.15%4

The famed Yale fund manager is heavier in property than most. I’ve switched out the original US domestic property fund for a more diversified global property vehicle. The 50:50 split between conventional bonds and inflation-protected index-linkers is a classic lazy portfolio ploy.

3. Rick Ferri’s Core Four Portfolio

Asset class	Asset allocation	Fund name	OCF
Domestic equity	36%	Vanguard FTSE UK Equity Index	0.15%5
Developed world	18%	Vanguard FTSE Dev World ex-UK Equity Index	0.3%
Property	6%	BlackRock Global Property Securities Equity Tracker D	0.28%
Government bonds (Gilts)	40%	Vanguard UK Government Bond Index	0.15%

Ferri’s 60:40 split between equities and bonds is another common convention, broadly indicating a portfolio set for moderate growth and volatility.

4. Bill Schultheis’ Coffeehouse Portfolio

Asset class	Asset allocation	Fund name	OCF
Domestic equity	10%	Vanguard FTSE UK Equity Index	0.15%6
Developed world	15%	Vanguard FTSE Dev World ex-UK Equity Index	0.3%
Domestic value	10%	Vanguard FTSE UK Equity Income Index	0.25%7
Domestic small cap	10%	iShares MSCI UK Small Cap ETF	0.58%
Emerging markets	5%	BlackRock Emerging Markets Equity Tracker D	0.28%
Property	10%	BlackRock Global Property Securities Equity Tracker D	0.28%
Government bonds (Gilts)	40%	Vanguard UK Government Bond Index	0.15%

The original portfolio has a 10% allocation to small-value equity, which isn’t available in the UK as a tracker. Schultheis has also said:

If I were creating a portfolio today, I would increase the international allocation and include emerging markets, probably 5 to 7 percent.

So I’ve eliminated small-value, upped the developed world ex-UK by 5% and brought in emerging markets at 5%.

5. Harry Browne’s Permanent Portfolio

Asset class	Asset allocation	Fund name	OCF
Domestic equity	25%	Vanguard FTSE UK Equity Index	0.15%8
Government bonds (Gilts)	25%	Vanguard UK Long Duration Gilt Index	0.15%9
Gold	25%	iShares Physical Gold ETC	0.25%
Cash	25%	High interest account	–

This truly is a portfolio for all-seasons. It’s armour-plated against inflation or deflation, recession, and even the good times. The assets have been picked for their contrasting behaviours, so whatever the conditions, some should thrive even while some dive. William Bernstein has written an excellent article about the permanent portfolio.

Note that the iShares gold vehicle is an Exchange Traded Commodity (ETC), not strictly an ETF.

6. Scott Burns’ Six Ways From Sunday Portfolio

Asset class	Asset allocation	Fund name	OCF
Domestic equity	1/6	Vanguard FTSE UK Equity Index	0.15%10
Global equity	1/6	db x-trackers FTSE All-World ex-UK ETF	0.4%
Global energy	1/6	db x-trackers MSCI World Energy ETF	0.45%
Property	1/6	BlackRock Global Property Securities Equity Tracker D	0.28%
Government bonds (Global)	1/6	iShares Global Government Bond ETF	0.2%
Government bonds (Index-linked)	1/6	Vanguard UK Inflation-Linked Gilt Index	0.15%11

Some unusual choices here, including a global energy fund because Burns believes, “Energy is the ultimate currency and the ultimate commodity.”

This portfolio is also notable for its global government bond allocation. Diversifying away from domestic government bonds holds the prospect of greater returns but more volatility too, as currency risk comes into play.

7. William Bernstein’s No Brainer Portfolio

Asset class	Asset allocation	Fund name	OCF
Domestic equity	25%	Royal London UK All Share Tracker Fund Z	0.14%
Developed world	25%	Vanguard FTSE Dev World ex-UK Equity Index	0.3%
Domestic small cap	25%	iShares MSCI UK Small Cap ETF	0.58%
Government bonds (Gilts)	25%	Vanguard UK Government Bond ETF	0.12%

Another simple and aggressive portfolio that’s 75% in equities. Note the straightforward 25% split between asset classes. This is because passive investors understand that there is no ‘correct’ answer to asset allocation.

Fine grain allocations may look impressively scientific but are no more likely to provide a better return than a crude four-way slice of the pie.

N.B. I’ve thrown in alternative solutions for UK domestic equity and government bonds for this one.

8. Harry Markowitz’s ‘In Real Life’ Portfolio

Asset class	Asset allocation	Fund name	OCF
Global equity	50%	Vanguard FTSE All-World ETF	0.25%
Government bonds (Gilts)	50%	Vanguard UK Government Bond ETF	0.12%

A portfolio based on the oft-told tale that the Nobel Prize winning inventor of modern portfolio theory split his real life portfolio 50:50 between equities and bonds. The All-World ETF offers plenty of diversification in a single fund.

9. Tim Hale Home Bias – Global Style Tilts 4 Portfolio

Asset class	Asset allocation	Fund name	OCF
Domestic equity	9%	Vanguard FTSE UK Equity Index	0.15%12
Domestic small value	6%	Aberforth UK Small Companies	0.85%
Developed world	15%	Vanguard FTSE Dev World ex-UK Equity Index	0.3%
Developed world small cap	6%	Vanguard Global Small-Cap Index Fund	0.4%
Developed world value	6%	Vanguard FTSE All-World High Dividend Yield ETF	0.29%
Emerging markets	6%	BlackRock Emerging Markets Equity Tracker D	0.28%
Commodities	6%	ETF Thomson Reuters/Jefferies CRB Ex-Energy TR	0.35%
Property	6%	BlackRock Global Property Securities Equity Tracker D	0.28%
Government bonds (Gilts)	15%	Vanguard UK Government Bond Index	0.15%
Government bonds (Index-linked)	25%	Vanguard UK Inflation-Linked Gilt Index	0.15%13

This is the one portfolio designed from the ground up for UK investors. Hence it’s more internationally diversified. US investors are more than happy to keep most of their chips at home in the world’s number one economic powerhouse.

There is certainly no need to devise a portfolio more comprehensive and complex than this one – a multi-fund portfolio like this can get costly if you’re paying dealing charges.

Hale originally allocated a distinct 3% to domestic small cap and another 3% to domestic value. You can use the options cited in the Coffeehouse portfolio if you want to stick to that prescription.

However, in a departure from my usual passive investing orthodoxy, I’ve thrown in an active investing wild card with Aberforth UK Smaller Companies.

This is a small value fund that’s not terribly expensive, fulfils Hale’s brief, and that I personally use. The truth is that small value funds are active management plays anyway and there’s no law against passive investors using active funds when there are no better alternatives. The Aberforth fund is available as a Unit Trust and an Investment Trust.

Intriguingly, the portfolio includes a wedge of commodities. Hale, like Larry Swedroe (but unlike William Bernstein), believes that commodities have a place in an investor’s portfolio.

Hale thinks that commodities offer diversification value because they are uncorrelated to bonds and equities. Hype and poor predicted returns are why many of the US passive commentators steer clear of commodities.

More Britisher snags with this low-cost take on Hale:

• The global small-cap fund is inc UK, not ex-UK. It increases small cap exposure a little beyond that intended by the designer.

• It is possible to exclude the UK by choosing separate US, Euro, and Asian small-cap ETFs. Though it’s too fiddly and expensive to do for my taste.

•  The All-World High Yield ETF substitutes for world ex-UK value. Again it includes UK, so exposure comments above apply.

Vanguard funds feature heavily in this piece because they are an excellent fund house that have blazed a low-cost trail in the UK. For some alternative choices take a look at the UK’s cheapest trackers and Monevator’s very own Slow and Steady portfolio.

Take it steady,

The Accumulator

1. Caveat: Sometimes it’s the only choice available, given the paucity of the UK market! [↩]
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Good reads from around the Web.

I was woken this week at 2am by a Metropolitan police helicopter circling overhead. Quite annoying, considering what a feat it was to get to sleep in the first place in the heatwave.

Fear not, dear reader! The fuzz wasn’t about to rappel into my garden, kick down my back door, and bust open my piggy bank on suspicion of my having stashed an undeclared and surprisingly tiny Russian oligarch in there.

No, the helicopter was in pursuit of a stolen vehicle, as well as searching “nearby open spaces” for one of the thieves who’d bailed.

I know this because of MPSintheSky, the improbably named Twitter account where London’s airborne finest report what they’re up to.

And it’s surprisingly effective. The Twitter account, I mean.

Before Twitter, these helicopters circling overhead had seemed one step from the capital becoming a Mega City One of Judge Dredd’s worst nightmare.

But when you read that a human being is up there looking for a missing person or even a mugger, it’s easier to fall snugly unconscious again.

Where did all the criminals go?

Do the Met’s choppers also cut crime? I’ve no idea, but it’s possible – because something has.

In another stick in the eye for grumpy 50-something middle-class men who think everything has gone to pot – many of whom read Monevator, so I stress my baiting is in their own best interest – crime has been sharply falling across the Western world for years.

Check out this illustration from The Economist this week:

Crime has crashed, with the exception of homicide, where I presume a majority of victims know their murderer, and hence you’ll probably learn as much from Shakespeare as you will from CrimeWatch.

Bump offs aside, nobody is quite sure what’s caused the incidence of other crimes to fall so far, so fast, particularly in the UK – and that gives everyone a chance to ride their own hobbyhorses.

The Economist runs through the laundry list, from better policing and improved private security to an aging population, more young people in education, wider access to abortion, and more prisoners behind bars.

Strangely it doesn’t make much of the long economic boom that proceeded the bust in the UK. Nor does it really delve into New Labour’s redistribution efforts, which even I think is worth a nod.

I don’t really have an investing angle, I just thought the graphic was pretty stark. If you can think of a way to make money from the trend then let us all know below.

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