The Ivy Portfolio is based on the endowment funds of Ivy League schools. Here we’ll take a look at its components and the best ETF’s to use in its construction.
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Contents
What is the Ivy Portfolio?
The Ivy Portfolio is the product of the famous Meb Faber researching the highly-successful endowment funds of Harvard and Yale. He presents a simple, equally weighted portfolio that any investor can use to replicate the same asset allocations with low-cost ETF’s. You can get the book here. I’d also highly recommend his book Global Asset Allocation: A Survey of the World’s Top Asset Allocation Strategies.
The Ivy Portfolio looks like this:
- 20% Total Stock Market
- 20% International Stock Market
- 20% Intermediate Bonds
- 20% Commodities
- 20% REITs
I’d be hesitant with the high allocations to commodities and REITs, considering the idiosyncratic risk of the real estate market and commodities’ very poor historical performance.
Ivy Portfolio Performance
Unsurprisingly, going back to 2007, the Ivy Portfolio has not done very well with its heavy allocations to commodities and REITs. It’s had volatility and drawdowns similar to those of an S&P 500 index fund, with much lower returns and risk-adjusted return (Sharpe):
Ivy Portfolio ETF Pie for M1 Finance
M1 Finance is a great choice of broker to implement the Ivy 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.
Utilizing mostly low-cost Vanguard funds, we can construct the Ivy Portfolio pie with the following ETF’s:
- VTI – 20%
- VXUS – 20%
- VGIT – 20%
- PDBC – 20%
- VNQ – 20%
You can add the Ivy Portfolio pie to your portfolio on M1 Finance by clicking this link and then clicking “Add to Portfolio.”
Disclosures: I am long VTI and VXUS.
Interested in more Lazy Portfolios? See the full list here.
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.
Thanks, John, for the great insights here. I really appreciate all the work you’ve done and so graciously share with the rest of us.
Quick observation:: The Ivy Portfolio as described in Faber’s book is not fully “lazy” (passive) — the investor is directed to calculate the 10-month simple moving average (SMA) of each asset class based on the closing price of the associated ETF on the last trading day of each month, then exit the position into cash if that price dips more than -1% of the 10-month SMA. You re-enter the position when it crosses the 10-month SMA by more than +1%. This long-term trend following is designed to keep the positions away from the largest drawdowns. Faber freely admits it can keep you out of the biggest part of the certain upswings, too, but he is solidly of the “to win, first of all, don’t lose” mindset with this approach.
Do your return calculations account for the “active management” of these entry and exit points for the ETFs or do they reflect a “buy and hold” (truly “lazy”) approach to running the portfolio?
One more point: There are two variants of the basic five-asset class Ivy Portfolio; one with ten asset classes and another with twenty. It might be interesting to see how those fare in comparison to the “Ivy 5” approach described here.
Thanks for the kind words, William!
Returns here do not reflect any active management.
I’ll look into those other portfolios.
When you give CAGRs, please specify the actual date of start and the actual date of stopping. Other than that, this is very helpful
Hey Thomas,
The performance backtest above from Portfolio Visualizer is using annual returns from Jan. 1, 2007 through Dec. 31, 2019.