These 9 portfolios can double your lifetime returns

In this article, the second installment of investor boot camp 2024, I’m going to show you the major long-term results you can get from what seem like tiny changes in your portfolio.

Actual results of stock indexes during the 54-year period 1970 through 2023 indicate that changing as little as 10% of your portfolio can — over a lifetime of investing — be worth millions.

If you invested $100,000 at the start of 1970 in the S&P 500 index SPX, reinvesting the dividends and capital gains through the end of 2023, your money would have grown to nearly $23.9 million. Not bad!

But note this: If at the outset you had allocated just 10% of your portfolio to large-cap value stocks (keeping the rest in the S&P 500), your money would have grown to $25.9 million.

The additional $2,062,256 resulted from a mere 0.1% increase in your compound annual return: from 10.7% for the S&P 500 to 10.8% after that slight modification.

Lesson No. 1: Over the long term, a truly tiny bump in performance can be huge.

But that’s only the beginning. Table A1a below shows where I’m going with this discussion. In the table, the combination I just described is Portfolio 2, and I’m calling the S&P 500 Portfolio 1.

By reallocating another 10% of your investments into small-cap blend stocks, you get Portfolio 3. This leaves 80% of the money in the S&P 500 and gives you an additional 0.2% bump in performance and $1.73 million more than Portfolio 2.

These two changes are hardly radical.

·        Most stocks in the large-cap value asset class also are part of the S&P 500. Portfolio 2 simply emphasizes these issues, which as a group tend to be underpriced and provide long-term outperformance.

·        Portfolio 3 adds a blend of small-cap stocks, both growth and value. The higher long-term performance reflects the fact that smaller companies have the potential to grow exponentially.

Next, if you leave 70% of your portfolio in the S&P 500 and add 10% in small-cap value stocks, you get Portfolio 4.

By itself, this asset class is relatively volatile. And yet it has produced far superior long-term returns. This small step, involving only 10% of the portfolio, adds 0.4% in long-term return plus $5.6 million over the long haul. 

Lesson No. 2: You can keep your comfort (with 70% still in the S&P 500) and still be paid handsomely for dipping your toes in the water of diversification. How handsome? An increase (measured by dollars) of 39% over the original portfolio.

I’m not recommending Portfolios 2 through 7. However, if you like what I’ve outlined so far, you could stop here (with Portfolio 4) and be happy with your long-term prospects. 

Yes, but is this risky? In truth, nothing about investing is entirely immune to risk. However, as measured by standard deviation, Portfolio 4’s risk is identical to that of the S&P 500 itself.

Portfolio 4 is good. But you can do better.

Portfolio 5 adds real-estate investment trusts, boosting the long-term return slightly while actually reducing statistical risk, as measured by standard deviation.

Thus far all the asset classes I’ve recommended are made up exclusively of U.S. companies.

For investors willing to invest globally, there’s Portfolio 6, which takes 40% more from the S&P 500 and allocates 10% each to four asset classes:

• international large-cap blend (roughly equivalent to the S&P 500)

 international large-cap value

• international small-cap blend
• and international small-cap value

The result: a very large increase in the long-term dollars, a 0.4% bump in compound annual return, and a bit more volatility.

Is the extra money worth this much diversification and additional risk? That’s a call for each investor to make.

However, if you’re truly committed to the long-term, I doubt you would ever notice the extra volatility, from 17.2% in our starting point, the S&P 500, up to 17.7% in Portfolio 6. But you certainly would notice the big difference in return, in this case an additional $18.2 million at the end of 54 years.

The final step in building a 10-part Ultimate Buy and Hold Portfolio is adding 10% in emerging markets stocks. Over these 54 years, this last step would have created a portfolio that more than doubled the long-term return of the S&P 500.

More good news: This 10-part strategy isn’t just a relic of the distant past. If you had started with $100,000 at the beginning of 2000, by the end of 2023 you would have had $508,988 in the S&P 500 — or $665,660 in Portfolio 7. This 10-fund strategy would have increased your 24-year payoff by $156,672 — a boost of nearly 31%.

But there are two pieces of bad news, one worse than the other.

The less-bad news is that there’s no way to know for sure if this portfolio will continue doing so well in the future. I have every reason to believe it will, but the future must remain unknown. Always.

The more problematic bit of bad news is there’s no easy way to build this portfolio, which requires 10 individual funds and annual rebalancing.

Fortunately, the past suggests that investors can get similar results with fewer funds.

As you can see in Table A2a, I have used these same U.S. and international asset classes to build seven more combinations, which I call Portfolios 8 through 14.

Each one requires only one to five funds. And over the past 54 years, each has outperformed the 10-part Ultimate Buy and Hold Strategy.

In the next installment of this investor boot camp 2024 series, we’ll focus on these additional combinations. In subsequent articles, you will learn how to combine stocks and bonds in order to control your level of risk, how to safely take money out when you retire, and much more. 

For a more detailed discussion of today’s topic, check out my podcast, “The Ultimate Buy and Hold Portfolio 2024 Update.”

I’ve also recorded a video with the same title.

Richard Buck contributed to this article.



Paul Merriman and Richard Buck are the authors of “We’re Talking Millions! 12 Simple Ways to Supercharge Your Retirement.”

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