Over the long run, the BMO Balanced portfolio delivered an annual return of 5.9% annual, versus 4.7% for the advanced model. We would expect the core model to outperform in a disinflationary period, or when inflation is mostly under control. If we remain in an inflationary or stagflationary environment, the advanced couch potato model should outperform the core portfolio.
All that said, there is often very little cost to adding that inflation protection, according to what I see in my research. And in most periods between the 1970s and now, adding gold, commodities and REITs as increased the performance of a balanced portfolio.
Here is a wonderful visual presentation on inflation, stagflation and deflation.
See the chart below for how a 60/40 U.S. balanced portfolio looks against a balanced portfolio with 20% bonds and 20% gold. The commodities allocation is not available on Portfolio Visualizer from 1972, so I used gold as the inflation-fighter. Gold is also known as a “safe haven asset,” as it typically performs well when stock markets correct in aggressive fashion.
The balanced portfolio with gold outperforms the traditional balanced model by 0.50% annually. In the above chart, the balanced portfolio consists of 60% U.S. stocks and 40% U.S. bonds. The balanced portfolio with gold has 60% U.S. stocks, 20% U.S. bonds and 20% gold.
Once again, whether or not to add gold and commodities is a personal call for the self-directed investor.
For my wife and myself, I hold gold, bitcoin, energy stocks, commodity stocks and commodities in modest amounts in our balanced growth portfolios, creating my own version of an all-weather portfolio. Being in semi-retirement, I need and want that financial (and emotional) protection from raging inflation or stagflation.
For those who may build their own couch potato ETF portfolio, check out the MoneySense ETF Finder Tool and the best ETFs in Canada.
MoneySense contributor Dale Roberts is a proponent of low-fee investing, and he owns the blog cutthecrapinvesting.com. Find him on Twitter @67Dodge for market updates and commentary, every morning.
