The Margarita Portfolio was created by investing writer Scott Burns. Here we’ll take a look at its components, historical performance, and the best ETF’s to use in its execution.
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Who is Scott Burns?
What is the Margarita Portfolio?
- 34% Total US Stock Market
- 33% Total Ex-US Stock Market
- 33% Inflation-Protected Treasury Bonds
Burns named it the Margarita Portfolio because he maintains that “the traditional margarita is the best,” the recipe for which he states as “one part tequila, one part triple sec, and one part fresh limejuice.”
Margarita Portfolio Performance Backtest and Review
Going back to 2001 when TIPS data begins, here’s a performance backtest of the Margarita Portfolio vs. the S&P 500 through 2019:
Unfortunately this is looking at a fairly short amount of time. Since 2001, the Margarita Portfolio has had nearly the same return as the S&P 500 index, with a slightly higher risk-adjusted return (Sharpe) from lower volatility.
I’m not a big fan of TIPS. Since their creation, they haven’t done a great job of doing what they were designed to do. I prefer intermediate-term treasuries, which have been less volatile historically and have offered better downside protection due to their comparatively less correlation to the market. Were I to implement the Margarita Portfolio allocations, I would use intermediate or long treasuries.
I do at least like that the Margarita Portfolio gives a heavy allocation to international stocks.
Margarita ETF Pie for M1 Finance
M1 Finance is a great choice of broker to implement the Margarita Portfolio because it makes rebalancing seamless and easy with one click, has zero transaction fees, has one of the lowest margin rates in the business, and incorporates dynamic rebalancing for new deposits. I wrote a comprehensive review of M1 Finance here.
Utilizing 2 ETF’s from Vanguard and 1 from iShares, we can construct the Margarita Portfolio Pie like this:
- VTI – 34%
- VXUS – 33%
- SPIP – 33%
You can add the Margarita Portfolio pie to your portfolio on M1 Finance by clicking this link and then clicking “Invest in this pie.”
Disclosures: I am long VTI 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.