• Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer

Optimized Portfolio

Investing and Personal Finance

  • Start Here
  • Investing 101
    • Beginners Start Here – 10 Steps To Start Building Wealth
    • What Is the Stock Market? How It Works & How to Invest in It
    • How To Invest in an Index Fund – The Best Index Funds
    • Portfolio Asset Allocation by Age
    • How To Invest Your Emergency Fund
    • Portfolio Diversification – How To Diversify Your Portfolio
    • Dollar Cost Averaging vs. Lump Sum Investing (DCA vs. LSI)
    • How To Invest Your HSA (Health Savings Account)
    • Factor Investing and Factor ETFs – The Ultimate Guide
    • more…
  • Lazy Portfolios
    • All Weather Portfolio
    • Bogleheads 3 Fund Portfolio
    • HEDGEFUNDIE’s Excellent Adventure
    • Warren Buffett Portfolio
    • Golden Butterfly Portfolio
    • Paul Merriman Ultimate Buy and Hold Portfolio
    • Ben Felix Model Portfolio
    • Permanent Portfolio
    • David Swensen Portfolio
    • 60/40 Portfolio
    • more…
  • Funds
    • VOO vs. VTI – Vanguard S&P 500 or Total Stock Market ETF?
    • The 7 Best International ETFs
    • The 8 Best Small Cap ETFs (4 From Vanguard)
    • The 5 Best REIT ETFs
    • The 5 Best EV ETFs – Electric Vehicles ETFs
    • VIG vs. VYM – Comparing Vanguard’s 2 Popular Dividend ETF’s
    • The Best Vanguard Dividend Funds – 4 Popular ETFs
    • The 5 Best Tech ETFs
    • The 7 Best Small Cap Value ETFs
    • The 6 Best ETFs for Taxable Accounts
    • The 5 Best Emerging Markets ETFs (1 From Vanguard) for 2023
    • more…
  • Leverage
    • What Is a Leveraged ETF and How Do They Work?
    • How To Beat the Market Using Leverage and Index Investing
    • The 9 Best Leveraged ETFs
    • Hedgefundie’s Excellent Adventure
    • Leveraged All Weather Portfolio
    • Leveraged Permanent Portfolio
    • Leveraged Golden Butterfly Portfolio
    • NTSX – Review and Summary
    • TQQQ – Is It A Good Investment?
    • PSLDX – A Review
    • SWAN – A Review
    • RPAR Risk Parity ETF Review
    • more…
  • Dividends
    • The Best M1 Finance Dividend Pie
    • The 11 Best Dividend ETFs
    • The Best Vanguard Dividend Funds – 4 Popular ETFs
    • VIG vs. VYM – Comparing Vanguard’s 2 Popular Dividend ETF’s
    • 8 Reasons Why I’m Not a Dividend Income Investor
    • QYLD – A Harsh Review
    • more…
  • Brokers
    • The 5 Best Stock Brokers
    • The 4 Best Investing Apps
    • M1 Finance Review
    • Brokers with the Lowest Margin Rates
    • M1 Finance vs. Fidelity
    • M1 Finance vs. Vanguard
    • Webull vs. Robinhood
    • Stash vs. Robinhood
    • M1 Borrow Review (How M1’s Margin Loan Works)
    • more…
  • Retirement
    • The 10 Best ETFs for Retirement Portfolios in 2023
    • The 4% Rule for Retirement Withdrawal Rate – A Revisitation
    • Sequence of Return Risk in Retirement Explained
    • Traditional IRA Explained
    • Roth IRA Explained
    • 401k vs. Roth IRA
    • Roth IRA vs. Traditional IRA
    • Backdoor Roth IRA Explained
    • more…
  • My Toolbox

Rob Arnott Portfolio Review, ETFs, and M1 Finance Pie

Last Updated: August 8, 2022 1 Comment – 4 min. read

The Rob Arnott Portfolio takes an all-weather approach to maximize diversification and mitigate volatility and risk. Here we'll review its components, performance, and ETFs to use in its implementation.

Interested in more Lazy Portfolios? See the full list here.

Disclosure:  Some of the links on this page are referral links. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. This allows me to continue producing high-quality, ad-free content on this site and pays for the occasional cup of coffee. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful, not because of the commission I get if you decide to purchase through my links. Read more here.

Contents

  • Who Is Rob Arnott?
  • What Is the Rob Arnott Portfolio?
  • Rob Arnott Portfolio Performance Backtest and Review
  • Rob Arnott Portfolio ETF Pie for M1 Finance

Who Is Rob Arnott?

Rob Arnott is the founder and chairman of Research Affiliates, a research and asset management firm famous for publishing seminal research and then investing based on that research. He has been one of the most prolific investing authors of his time, with over 130 papers published in financial journals.

Arnott and Research Affiliates are famous for their idea of “fundamental indexing,” or using firms' valuation fundamentals, like earnings and cash flow, as a weighting scheme instead of traditional market cap. They were granted a patent for this index methodology in 2009. Arnott lays out the details of this so-called “smart beta” approach for retail investors in his book The Fundamental Index: A Better Way To Invest. Examples of fundamental index funds include PRF from Invesco and several ETFs from WisdomTree: DGRW, DGRS, and QSY.

You can check out the Research Affiliates model portfolios here.

What Is the Rob Arnott Portfolio?

So first, note that Rob Arnott himself has not explicitly endorsed this portfolio. It has simply made the rounds over the years after he mentioned its components and weightings in an article from 2008 when talking about the arguable suboptimality and expensiveness of hedge funds as a vehicle for most investors. Basically, it was simply used as an example for comparison of performance. I doubt Arnott would actually put his own money into it, and his ideas have almost certainly evolved since its publication with the growing research on equity risk factors, of which he's been a big part.

To get exposure to Arnott's actual research and strategy, you'll want to check out the Research Affiliates model portfolios here.

This portfolio is simply an equal weighting of the following assets:

10% Commodities
10% REITs
10% TIPS
10% High-Yield Bonds
10% Long-Term US Treasury Bonds
10% Emerging Markets Bonds
10% Unhedged Foreign Bonds
10% International Stocks
10% U.S. Stocks
10% U.S. Investment-Grade Bonds

At the very least, it is quite a colorful portfolio:

rob arnott portfolio

Rob Arnott Portfolio Performance Backtest and Review

I couldn't get too far with a backtest because this thing calls for some fairly exotic assets like Emerging Markets government bonds and unhedged foreign bonds, but I was able to go back to 2004, through June 2021, comparing it to the famous All Weather Portfolio and the S&P 500:

rob arnott portfolio performance
Source: PortfolioVisualizer.com

In short, as was my take on the 7Twelve Portfolio, this appears to be largely a case of diversification for the sake of diversification. But then that was sort of the point in Arnott's original article where this was used as an ad hoc example of delivering modest returns while limiting volatility and risk like a hedge fund would do.

That said, this thing could definitely be simplified. As you can see, the All Weather Portfolio has done a much better job of achieving that goal across the board historically with half the number of assets – greater return, lower volatility, much better worst year, much smaller max drawdown, and of course higher risk-adjusted return. The risk-adjusted return of the Arnott portfolio was even lower than that of the S&P 500!

There are a few reasons for this:

  1. This portfolio only dedicates 20% to actual equities, half U.S. and half foreign.
  2. In my opinion, way too much space is being given to assets in what I guess would be an attempt to hedge against inflation, TIPS and commodities, the latter of which I'm not a fan of. I'd also rather use gold over broad commodities.
  3. We don't need all the different bond funds of varying durations and types. Keep it simple with treasuries. Dalio gets this.
  4. Using unhedged foreign bonds just seems …weird. This might simply be due to the fact that Arnott is a PIMCO advisor and I believe they had the only product for this asset at that time.

This criticism may sound unfairly harsh, but again, note that Arnott himself would likely never invest in this portfolio. His strategy is much better exemplified by the Research Affiliates Model Portfolios, so go check those out.

Rob Arnott Portfolio ETF Pie for M1 Finance

If for some reason you want to invest in this portfolio, M1 Finance is a great choice of broker with which to do it, 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 Rob Arnott Portfolio like this:

  • VTI – 10%
  • VXUS – 10%
  • VWOB – 10%
  • USHY – 10%
  • PDBC – 10%
  • BND – 10%
  • VGLT – 10%
  • BWX – 10%
  • VNQ – 10%
  • SCHP – 10%

You can add the Rob Arnott Portfolio pie to your portfolio on M1 Finance by clicking this link and then clicking “Save to my account.”

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.


Interested in more Lazy Portfolios? See the full list here.

Disclaimer:  While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment 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. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.

m1

Are you nearing or in retirement? Use my link here to get a free holistic financial plan from fiduciary advisors at Retirable to manage your savings, spend smarter, and navigate key decisions.

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.

77 percent of millenials report their finances are a source of anxiety

Related Posts

  • The 8 Best Bitcoin ETFs and Cryptocurrency ETFs for 2023
  • Couch Potato Portfolio Review and ETFs (Scott Burns, 2023)
  • The 3 Best Inverse ETFs to Short the S&P 500 Index in 2023
  • The Best Vanguard Growth Funds – 5 Popular ETFs
  • The Best Vanguard Dividend Funds – 4 Popular ETFs

About John Williamson, APMA®

Analytical data nerd, investing enthusiast, fintech consultant, Boglehead, and Oxford comma advocate. I'm not a big fan of social media, but you can find me on LinkedIn and Reddit.

Reader Interactions

Comments

  1. Daniel Kinskey says

    July 15, 2021 at 11:09 pm

    “If for some reason you want to invest in this portfolio…” this gave me a good chuckle, thank you lol

    Unhedged foreign bonds is indeed weird. Is there even a reasonable basis for any investor to invest in that type of product?

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

  • Facebook
  • Instagram
  • Reddit
  • Twitter
  • YouTube
  • Patreon

Join 5,372 other investors

Take control of your financial future by subscribing to receive exclusive emails with expert tips, news, and notifications of new posts and important updates.

Don't worry, I hate spam too. No ads.

John Williamson, APMA®

Analytical data nerd, investing enthusiast, fintech consultant, Boglehead, and Oxford comma advocate. I'm not a big fan of social media, but you can find me on LinkedIn and Reddit. Read More…

Most Popular

Ray Dalio All Weather Portfolio Review, ETFs, & Leverage (2023)

HEDGEFUNDIE’s Excellent Adventure (UPRO/TMF) – A Summary

Golden Butterfly Portfolio Review and M1 Finance ETF Pie

David Swensen Portfolio (Yale Model) Review and ETFs To Use

54 Lazy Portfolios and Their ETF Pies for M1 Finance (2023)

VIG vs. VYM – Vanguard’s 2 Popular Dividend ETFs (Review)

Warren Buffett ETF Portfolio (90/10) Review and ETFs (2023)

Bogleheads 3 Fund Portfolio Review and Vanguard ETFs (2023)

Paul Merriman Ultimate Buy and Hold Portfolio Review & ETFs (2023)

The Best M1 Finance Dividend Pie for FIRE & Income Investors

m1 sidebar

retirable

Portfolio Asset Allocation by Age – Beginners To Retirees

The 7 Best Small Cap ETFs (3 From Vanguard) for 2023

9 Best International ETFs To Buy (6 From Vanguard) in 2023

The 3 Best Inverse ETFs to Short the S&P 500 Index in 2023

Ben Felix Model Portfolio (Rational Reminder, PWL) ETFs & Review

Factor Investing and Factor ETFs – The Ultimate Guide

NTSX ETF Review – WisdomTree U.S. Efficient Core ETF (90/60)

The Ginger Ale Portfolio (My Own Portfolio) and M1 ETF Pie

TQQQ – Is It A Good Investment for a Long Term Hold Strategy?

QYLD – Avoid This ETF as a Long-Term Investment (A Review)

The 5 Best T Bill ETFs (Treasury Bills) To Park Cash in 2023

JEPI ETF Review – JPMorgan Equity Premium Income ETF

SPAXX vs. FZFXX, FDIC, FCASH, FDRXX – Fidelity Core Position

Recent Posts

Buy Borrow Die Strategy Explained – How the Rich Avoid Taxes

Whole vs. Term Life Insurance – Which Is Best for You?

“Should I Invest in International Stocks?” Yes. Here’s Why.

Return Stacking Explained – Greater Returns With Lower Risk?

RSSB ETF Review – Return Stacked Global Stocks & Bonds ETF

Fees, Trees, & Forests – Stop Obsessing Over Expense Ratios

Optimized Portfolio “Best in Class” ETFs List for 2023

7 Best Covered Call ETFs for Income Investors in 2023

Roth IRA vs. Traditional IRA – Which Is Better for You? (2023)

How To Build a 3 Fund Portfolio at Fidelity in 2023

Fidelity ZERO Funds Review – What’s the Catch?

Jack Bogle Was Wrong About These 3 Things

I Bonds Explained (US Savings Bonds) – Ultimate Guide (2023)

Sharpe Ratio vs. Sortino vs. Calmar – Risk Adjusted Return

Portfolio Risk Explained – How To Think About Risk and Volatility

View All...

Footer

  • Facebook
  • Instagram
  • Reddit
  • Twitter
  • YouTube
  • Patreon

Amazon Affiliate Disclosure

OptimizedPortfolio.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.

Email Newsletter

Sign up to receive email updates when a new post is published.

Don't worry, I hate spam too. No ads.

About - My Toolbox - Privacy - Terms - Contact


Copyright © 2023 OptimizedPortfolio.com

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Ok, Got ItReject Read More
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Non-necessary
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
SAVE & ACCEPT