The Margarita Portfolio was created by investing writer Scott Burns. Here we’ll take a look at its components, historical performance, and the best ETFs to use in its implementation.
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Who Is Scott Burns?
What Is the Margarita Portfolio?
- 34% Total US Stock Market
- 33% Total International Stock Market
- 33% Inflation-Protected Treasury Bonds (TIPS)
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 lime juice.”
Margarita Portfolio Performance Backtest and Review
Going back to 1997 when TIPS data begins, here’s a performance backtest of the Margarita Portfolio vs. the S&P 500 through July, 2021:
Results have been fairly close for this time period. The Margarita Portfolio delivered a lower return than the S&P 500 index, but with lower volatility and risk and thus a slightly higher risk-adjusted return (Sharpe).
I like TIPS, but it seems strange and suboptimal to use them as the sole fixed income asset here. I’d prefer nominal intermediate-term treasury bonds. Were I to implement the Margarita Portfolio allocations, I would use intermediate or long treasuries, or split the bonds evenly between nominal and real bonds.
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 low-cost funds from Vanguard and 1 from iShares, we can construct the Margarita Portfolio Pie like this:
- VTI – 34%
- VXUS – 33%
- SCHP – 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.”
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.
Disclosures: I am long VTI and VXUS in my own portfolio.
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.