The Pinwheel Portfolio utilizes “colorful diversification and familiar symmetry.” Here we’ll take a look at its components, performance, and the best ETF’s to use in its execution.
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What is the Pinwheel Portfolio?
The Pinwheel Portfolio is a lazy portfolio created by Tyler from PortfolioCharts.com. He named it such because of its “colorful diversification and familiar symmetry.” He also designed the Golden Butterfly Portfolio. The Pinwheel Portfolio is probably the most visually appealing lazy portfolio.
Essentially, the Pinwheel Portfolio uses equal weightings of the 4 assets above, and then overweights (“tilts”) specific asset classes within each one in an attempt to optimize performance and reduce volatility and risk. These specific asset classes have historically paid a risk premium.
The Pinwheel Portfolio is as follows:
- 15% Total U.S. Stock Market
- 10% U.S. Small Cap Value
- 15% Total International Stock Market
- 10% Emerging Markets
- 15% Intermediate Bonds
- 10% Cash
- 15% REITs
- 10% Gold
Pinwheel Portfolio Performance Backtest vs. the S&P 500
Going back to 1995, here’s the Pinwheel Portfolio’s performance vs. an S&P 500 index fund through 2019:
Compared to the S&P 500 index, the Pinwheel Portfolio has delivered an identical risk-adjusted return (Sharpe) since 1995, with lower volatility, as we’d expect.
I appreciate the Pinwheel’s Portfolio’s use of international diversification (most lazy portfolios don’t) and the small cap value tilt to capture the Size and Value factor premia. I still think they exist, though they’ve suffered in recent years.
I also agree with Tyler that while many, myself included, aren’t into gold, a 10% allocation is a much easier pill to swallow than 20-25% as with the Permanent Portfolio. The bonds, gold, and REITs act as diversifiers to help lower portfolio volatility and risk, providing a smoother, more stable ride as you can see in the graph above.
With the 10% allocation to cash, I’d probably be inclined to put the other 15% fixed income in long-term bonds instead of intermediate-term bonds, thereby basically getting a barbell approach on the 1/4 fixed income slice.
Pinwheel Portfolio ETF Pie for M1 Finance
M1 Finance is a great choice of broker to implement the Pinwheel 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.
Using mostly low-cost Vanguard funds, we can construct the Permanent Portfolio pie like this:
- VTI – 15%
- VBR – 10%
- VXUS – 15%
- VWO – 10%
- VGIT – 15%
- BIL – 10%
- VNQ – 15%
- IAU – 10%
You can add the Pinwheel Portfolio pie to your portfolio on M1 Finance by clicking this link and then clicking “Save to my account.”
Disclosure: I am long VXUS and VBR.
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.