The Frank Armstrong Ideal Index Portfolio is comprised of global stocks, short term bonds, and REITs. Here we’ll take a look at its components, performance, and the best ETF’s to use in its implementation.
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Who is Frank Armstrong?
As the name suggests, the Ideal Index Portfolio was created by financial adviser and author Frank Armstrong. Armstrong is a Certified Financial Planner and the founder of Investor Solutions, Inc. You can find his books on Amazon here.
What is the Frank Armstrong Ideal Index Portfolio?
The 5 Asset Portfolio is globally diversified across stocks and bonds and includes dedicated diversifiers like commodities and REITs in an attempt to lower the portfolio’s volatility and risk. The Frank Armstrong Ideal Index Portfolio is as follows:
- 31% International Large Cap Stocks
- 9.25% U.S. Small Cap Value
- 9.25% U.S. Large Cap Value
- 8% U.S. REITs
- 6.25% U.S. Small Cap Growth
- 6.25% U.S. Large Cap
- 30% U.S. Short-Term Bonds
Frank Armstrong Ideal Index Portfolio Performance Backtest vs. the S&P 500
With my REIT data only going back to 1994, here’s the Frank Armstrong Ideal Index Portfolio’s performance vs. an S&P 500 index fund through 2019:
With international stocks, small cap stocks, and the Value factor suffering recently, and with REITs taking a dive in the 2008 Global Financial Crisis, the Ideal Index Portfolio has delivered a lower risk-adjusted return (Sharpe) than the S&P 500 over this time period, with volatility only about 1/3 lower.
I believe the Value premium still exists. Clearly Armstrong does too. But that makes the dedicated inclusion of small-cap growth stocks questionable and confusing, as small-cap growth stocks have demonstrably not paid a risk premium historically. I can appreciate the dedicated inclusion of REITs and international stocks, but I also feel that a 30% allocation to a cash equivalent is far too conservative for my tastes, and won’t provide the diversification benefit that longer-duration bonds would.
Frank Armstrong Ideal Index Portfolio ETF Pie for M1 Finance
M1 Finance is a great choice of broker to implement the 5 Asset Portfolio because it makes regular rebalancing seamless and easy, has zero transaction fees, and incorporates dynamic rebalancing for new deposits. I wrote a comprehensive review of M1 Finance here.
Note that M1 Finance does not allow for fractions of 1% holdings on the first buy, so I’ve slightly adjusted the allocations.
Using entirely low-cost Vanguard funds, we can construct the Ideal Index Portfolio pie like this:
- VXUS – 31%
- VBR – 9%
- VTV – 9%
- VNQ – 8%
- VBK – 6%
- VOO – 7%
- VGSH – 30%
You can add the Ideal Index Portfolio pie to your portfolio on M1 Finance by clicking this link and then clicking “Invest in this pie.”
Don’t want to do all this investing stuff yourself or feel overwhelmed? Check out my flat-fee-only fiduciary friends over at Advisor.com.
Disclosure: I am long VOO, VBR, and VXUS.
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.
Don't want to do all this investing stuff yourself or feel overwhelmed? Check out my flat-fee-only fiduciary friends over at Advisor.com.