The 7Twelve ® Portfolio Craig L. Israelsen, Ph.D. 2013 1.

The 7Twelve® Portfolio

Craig L. Israelsen, Ph.D.

2013

www.7TwelvePortfolio.com 1

This document is a research report presenting portfolio research and analysis.

This document is neither investment advice nor an investment solicitation.

Implementation of the 7Twelve portfolio is no guarantee of performance.

---------------------------------------------------------------------------------------------

This is a copyrighted document, copying for redistribution is prohibited unless written permission is

obtained from Craig L. Israelsen

The term 7Twelve® is a registered trademark belonging to Craig L. Israelsen

Copyright © 2008-2013 Craig L. Israelsen

All rights reservedwww.7TwelvePortfolio.com 2

Overview

►Part One provides a historical context of the benefits of a multi-asset, low correlation portfolio. 43-year history (1970-2012)

►Part Two introduces the 7Twelve Portfolio, a multi-asset, low correlation balanced portfolio. 15-year history (1998-2012)


Part One: 43-year Asset Class Review


43-Year Historical Asset Returns43-Year Period from 1970-2012

Annualized

Return (%)

Std Dev of Annual Returns

Growth of $10,000

Real Estate 11.51 19.42 1,081,237

US Small Stock 10.75 21.99 807,255

US Large Stock 9.94 17.55 588,540

Commodities 9.47 24.49 489,280

International Stock 9.06 22.50 417,147

Bonds (Aggregate) 8.18 6.53 293,874

Cash 5.59 3.48 103,692

Inflation (CPI) 4.29 3.06 60,980www.7TwelvePortfolio.com 5

Data • Large-cap US equity represented by the S&P 500 Index.

• Small-cap US equity represented by the Ibbotson Small Companies Index from 1970-1978, and the Russell 2000 Index starting in 1979.

• Non-US equity represented by the MSCI EAFE Index.

• Real estate represented by the NAREIT Index from 1970-1977 and the Dow Jones US Select REIT Index starting in 1978.

• Commodities represented by the Goldman Sachs Commodities Index (GSCI). As of February 6, 2007, the GSCI became the S&P GSCI Commodity Index.

• U.S. Aggregate Bonds represented by the Ibbotson Intermediate Term Bond Index from 1970-75 and the Barclays Capital Aggregate Bond index starting in 1976.

• Cash represented by 3-month Treasury Bills.


43-year Historical Upside and Downside43-Year Period from 1970-2012

Largest One-Year Gain (%)

Worst One-Year Loss (%)

Worst 3-Year Cumulative Return (%)

Bonds 32.6 (2.9) 6.15

Cash 15.6 0.06 0.28

REIT 49.0 (39.2)* (35.6)

US Large Stock 37.6 (37.0)* (37.6)

Commodities 74.9 (46.5)* (39.7)

US Small Stock 57.4 (33.8)* (42.2)

International Stock 69.4 (43.4)* (43.3)

www.7TwelvePortfolio.com

* Worst One-Year Loss Occurred in 2008 7


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12

Cash

REIT

Commodities

Bonds

Non-US Equity

Small US Equity

Large US Equity

43-Year Risk/Return Analysis: 1970-2012

Worst Three-Year Cumulative % Return (1970-2012)

Av

era

ge

An

nu

aliz

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% R

etu

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19

70

-20

12

)


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6

7

8

9

10

11

12

Cash

REIT

Commodities

Bonds

Non-US Equity

Small US Equity

Large US Equity



Av

era

ge

An

nu

aliz

ed

% R

etu

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19

70

-20

12

)

Ideal Risk & Return “Zone”

To be diversified, a portfoliomust combine multiple ingredients that have

low correlation with each other.


43-Year Correlations of Major Asset Classes(1970-2012)

Large US Equity

Small US Equity

Non-US Equity

US Bonds

Cash REIT

Small US Equity 0.78

Non-US Equity 0.66 0.55

US Bonds 0.25 0.11 -0.01

Cash 0.09 0.05 -0.01 0.26

REIT 0.51 0.75 0.37 0.05 0.06

Commodities -0.06 -0.14 0.04 -0.13 0.13 -0.04

Aggregate (Average) Correlation in Equal-Weighted 7-Asset Portfolio = 0.20


Rolling 10-Year Correlations

Using S&P 500 as comparison baseline index


Large and Small US Stock


19791980

19811982

19831984

19851986

19871988

19891990

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20072008

20092010

20112012

(1.00)

(0.80)

(0.60)

(0.40)

(0.20)

0.00

0.20

0.40

0.60

0.80

1.00

10-Year Rolling Correlations: 1970-2012 Large US Stock to Small US Stock

US Stock and Non-US Stock


19791980

19811982

19831984

19851986

19871988

19891990

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20072008

20092010

20112012

(1.00)

(0.80)

(0.60)

(0.40)

(0.20)

0.00

0.20

0.40

0.60

0.80

1.00

10-Year Rolling Correlations: 1970-2012 Large US Stock to Non-US Stock

US Stock and REITs


19791980

19811982

19831984

19851986

19871988

19891990

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20072008

20092010

20112012

(1.00)

(0.80)

(0.60)

(0.40)

(0.20)

0.00

0.20

0.40

0.60

0.80

1.00

10-Year Rolling Correlations: 1970-2012 Large US Stock to REIT

US Stock and Commodities


19791980

19811982

19831984

19851986

19871988

19891990

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20072008

20092010

20112012

(1.00)

(0.80)

(0.60)

(0.40)

(0.20)

0.00

0.20

0.40

0.60

0.80

1.00

10-Year Rolling Correlations: 1970-2012 Large US Stock to Commodities

US Stock and US Bonds


19791980

19811982

19831984

19851986

19871988

19891990

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20072008

20092010

20112012

(1.00)

(0.80)

(0.60)

(0.40)

(0.20)

0.00

0.20

0.40

0.60

0.80

1.00

10-Year Rolling Correlations: 1970-2012 Large US Stock to US Bonds

US Stock and Cash


19791980

19811982

19831984

19851986

19871988

19891990

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20072008

20092010

20112012

(1.00)

(0.80)

(0.60)

(0.40)

(0.20)

0.00

0.20

0.40

0.60

0.80

1.00

10-Year Rolling Correlations: 1970-2012 Large US Stock to US Cash

Meaningful portfolio diversification requires

Depth and Breadth

Mutual Funds/ETFs = DepthWide variety of funds = Breadth


The following slide demonstrates portfolio performance as

diversity (or breadth)increases.



2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.05

6

7

8

9

10

11Add Commodities

(14.3% each)

Add Real Estate (16.7% each)

Add Non-US Stock (20% each)Add US Sml Stock

(25% each)

Add US Stock (33% each)

Add Bonds (50% each)

100% Cash

43-Year Risk/Return Analysis: 1970-201241 Rolling 3-Year Periods

Standard Deviation of 3-Year Average Annualized Returns

Av

era

ge

3-Y

ea

r R

eu

trn

(1

97

0-2

01

2)

When built correctly, a multi-asset portfolio achieves

equity-like returns with

bond-like risk


Year Large US Equity

Small US Equity

Non-US Equity

Aggregate US Bonds

Cash Real Estate CommoditiesEqually

Weighted Multi-Asset Portfolio

1970 3.92 (17.43) (11.66) 16.86 6.80 (4.00) 15.17 1.38

1971 14.30 16.50 29.59 8.72 4.53 15.52 21.08 15.75

1972 19.00 4.43 36.35 5.16 4.24 8.01 42.43 17.09

1973 (14.69) (30.90) (14.92) 4.61 7.46 (15.52) 74.96 1.57

1974 (26.47) (19.95) (23.16) 5.69 8.35 (21.40) 39.51 (5.35)

1975 37.23 52.82 35.39 7.83 6.08 19.30 (17.22) 20.20

1976 23.93 57.38 2.54 15.60 5.23 47.59 (11.92) 20.05

1977 (7.16) 25.38 18.06 3.04 5.52 22.42 10.37 11.09

1978 6.57 23.46 32.62 1.39 7.67 10.98 31.61 16.33

1979 18.61 43.07 4.75 1.93 10.86 48.99 33.81 23.15

1980 32.50 38.60 22.58 2.71 12.71 33.12 11.08 21.90

1981 (4.92) 2.03 (2.28) 6.25 15.58 17.88 (23.01) 1.65

1982 21.55 24.95 (1.86) 32.62 11.66 20.91 11.56 17.34

1983 22.56 29.13 23.69 8.36 9.24 32.17 16.26 20.20

1984 6.27 (7.30) 7.38 15.15 10.33 21.89 1.05 7.82

1985 31.73 31.05 56.16 22.10 7.97 6.50 10.01 23.65

1986 18.67 5.68 69.44 15.27 6.29 19.75 2.05 19.59

1987 5.25 (8.80) 24.63 2.76 6.13 (6.59) 23.77 6.74

1988 16.61 25.02 28.27 7.89 7.06 17.48 27.94 18.61

1989 31.69 16.26 10.54 14.53 8.67 2.72 38.28 17.53

1990 (3.10) (19.48) (23.45) 8.96 7.99 (23.44) 29.08 (3.35)


YearLarge US

EquitySmall US

EquityNon-US Equity

Aggregate US Bonds

Cash Real Estate CommoditiesEqually

Weighted Multi-Asset Portfolio

1991 30.47 46.04 12.13 16.00 5.68 23.84 (6.13) 18.29

1992 7.62 18.41 (12.17) 7.40 3.59 15.13 4.42 6.34

1993 10.08 18.88 32.56 9.75 3.12 15.14 (12.33) 11.03

1994 1.32 (1.82) 7.78 (2.92) 4.45 2.66 5.29 2.39

1995 37.58 28.45 11.21 18.48 5.79 12.24 20.33 19.15

1996 22.96 16.49 6.05 3.63 5.26 37.05 33.92 17.91

1997 33.36 22.36 1.78 9.66 5.31 19.66 (14.07) 11.15

1998 28.58 (2.55) 20.00 8.69 5.02 (17.01) (35.75) 1.00

1999 21.04 21.26 26.97 (0.82) 4.87 (2.58) 40.92 15.95

2000 (9.10) (3.02) (14.17) 11.63 6.32 31.04 49.74 10.35

2001 (11.89) 2.49 (21.44) 8.44 3.67 12.35 (31.93) (5.47)

2002 (22.10) (20.48) (15.94) 10.26 1.68 3.58 32.07 (1.56)

2003 28.69 47.25 38.59 4.10 1.05 36.18 20.72 25.23

2004 10.88 18.33 20.25 4.34 1.43 33.16 17.28 15.10

2005 4.91 4.55 13.54 2.43 3.34 13.82 25.55 9.73

2006 15.79 18.37 26.34 4.33 5.07 35.97 (15.09) 12.97

2007 5.49 (1.57) 11.17 6.97 4.77 (17.56) 32.67 5.99

2008 (37.00) (33.79) (43.38) 5.24 1.51 (39.20) (46.49) (27.59)

2009 26.46 27.17 31.78 5.93 0.16 28.46 13.49 19.06

2010 15.06 26.86 7.75 6.54 0.14 28.07 9.03 13.35

2011 2.11 (4.18) (12.14) 7.84 0.06 9.37 (1.18) 0.27

2012 16.00 16.35 17.32 4.22 0.08 17.12 0.08 10.17


Single Assets vs. Multi-Asset Portfolio

1970-2012

Large US Equity

Small US Equity

Non-US Equity

US Bonds

Cash Real Estate

Commodities

Equally

Weighted

7-Asset Portfolio

43-Year Average Annualized %

Return9.94 10.75 9.06 8.18 5.59 11.51 9.47 10.26

43-Year Standard

Deviation of Annual Returns

17.55 21.99 22.50 6.53 3.48 19.42 24.49 10.34

Growth of $10,000 588,540 807,255 417,147 293,874 103,692 1,081,237 489,280 667,357

Number of Years

with Negative Returns

9 13 12 2 0 9 11 5

Worst One-Year % Return (37.00) (33.79) (43.38) (2.92) 0.06 (39.20) (46.49) (27.59)

Worst Three-Year

Cumulative % Return

(37.61) (42.24) (43.32) 6.15 0.28 (35.61) (39.72) (13.30)

www.7TwelvePortfolio.com25


1970197119721973197419751976197719781979198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012

(40)

(30)

(20)

(10)

0

10

20

30

Annual Returns for Multi-Asset Portfolio43-year Period: 1970-2012


1970197119721973197419751976197719781979198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012

(50)

(40)

(30)

(20)

(10)

0

10

20

30

40

50

Annual Returns for Multi-Asset Portfolio vs. S&P 500 Index43-year Period: 1970-2012


1970197119721973197419751976197719781979198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012

(50)

(40)

(30)

(20)

(10)

0

10

20

30

40

50


RISK: Investors incorrectly benchmark a multi-asset portfolio against the S&P 500 Index


1970197119721973197419751976197719781979198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012

(50)

(40)

(30)

(20)

(10)

0

10

20

30

40

50


S&P 500 Index outperformed multi-asset portfolio 53% of the time (23 years out of 43 years)


1970197119721973197419751976197719781979198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012

(50)

(40)

(30)

(20)

(10)

0

10

20

30

40

50


Multi-Asset Portfolio Annualized Return = 10.26%S&P 500 Index Annualized Return = 9.94%

Key to Long-Term Success

Reducing the

frequency and magnitude of losses


The Math of LossesNeeded % Gain = [1 / (1 – % Loss)] – 1

Percentage Loss in Portfolio Portfolios

Needed Percentage Gain to Restore

Portfolio

-5% 5.3%-10% 11.1%-15% 17.6%-20% 25.0%-27% Multi-Asset Portfolio 37.0%-30% 42.9%-35% 53.8%-37% S&P 500 Index 58.7%-40% 66.7%-45% 81.8%-50%

141 equity funds lost 50% or more in 2008

(funds with at least 60% equity)

100.0%-55% 122.2%-60% 150.0%-65% 185.7%-70% 233.3%-75% 300.0%



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Cash

REIT

60/40

Equal Weighted Multi-Asset Portfolio

Commodities

Bonds

Non-US Equity

Small US Equity

Large US Equity



Av

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% R

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19

70

-20

12

)

Performance of Multi-Asset Portfolio

During Post-Retirement Distribution Phase


Starting Year

Ending Year

100% Bond Portfolio

60% US Stock/40% Bond Portfolio

Multi-Asset Portfolio

1970 1994 822,191 1,090,107 2,112,6451971 1995 720,798 1,311,010 2,746,8801972 1996 684,340 1,293,137 2,727,6211973 1997 766,758 1,312,680 2,482,2201974 1998 862,557 2,283,424 2,715,0911975 1999 855,578 3,911,519 3,810,7581976 2000 905,696 2,816,266 3,402,7651977 2001 767,024 2,073,621 2,588,6331978 2002 908,182 2,242,423 2,332,9681979 2003 1,046,407 2,719,964 2,475,5191980 2004 1,179,314 2,661,949 2,170,6631981 2005 1,273,143 2,187,661 1,816,1341982 2006 1,305,025 2,691,137 2,205,7561983 2007 866,336 2,111,123 1,926,6191984 2008 853,183 1,397,720 1,079,0171985 2009 731,759 1,531,851 1,225,8711986 2010 524,523 1,183,829 999,0551987 2011 423,921 986,426 745,5061988 2012 476,516 1,121,184 794,669

Average Ending Balance 840,697 1,943,528 2,124,126


Retirement Distribution Portfolio Ending Account Balances (1970-2012)

$250,000 starting balance, 5% initial withdrawal, 3% annual increase in withdrawal Total amount withdrawn over each 25-year period = $455,741

35$180,598 higher average

Part Two: 7Twelve Portfolio model


Building a Multi-Asset Low Correlation Portfolio


• 7 Core Asset Classesutilizing

• 12 Underlying Funds


7Twelve®

A Multi-Asset Balanced Investment Strategy


Eight Equity and Diversifying Funds 65% of Overall Portfolio Allocation

Four Fixed Income Funds 35% of Overall Portfolio Allocation

US Stock Non-US Stock Real Estate Resources US Bonds Non-US Bonds Cash


Large US Stock 8.33%

Mid Cap US Stock 8.33%

Small US Stock 8.33%

Non-US Stock 8.33%

Emerging Markets 8.33%Real Estate

8.33%Natural Resources 8.33%

Commodities 8.33%

US Bonds 8.33%

International Bonds 8.33%

TIPS 8.33%

Cash 8.33%

7TwelveAll 12 funds are equally weighted in the “core” model

Old vs. New

8.3%

8.3%

8.3%

8.3%

8.3%

8.3%8.3%

8.3%

8.3%

8.3%

8.3%

8.3%

7Twelve Balanced PortfolioLarge US Stock

Mid US Stock

Small US Stock

Non-US Stock

Emerging markets stock

Real Estate

Resources

Commodities

US Bonds

TIPS

Non-US Bonds

Cash

10-Year Annualized Return = 9.79%(2003-2012)


60%

40%

Typical 60/40 Balanced Fund

US Stock

US Bonds

10-Year Annualized Return 7.07%(2003-2012)

7TwelveA Multi-Asset Balanced Strategy

40

Total % Return(Assuming annual rebalancing)

Active 7Twelve Portfolio

Passive 7Twelve Portfolio

VanguardBalanced Index

Vanguard500 Index

2003 28.84 27.09 19.87 28.502004 19.86 17.76 9.33 10.742005 13.16 12.17 4.65 4.772006 16.36 15.15 11.02 15.642007 13.79 11.31 6.16 5.392008 (28.22) (24.62) (22.21) (37.02)2009 32.45 24.90 20.05 26.492010 14.52 14.50 13.13 14.912011 (6.30) (1.01) 4.14 1.972012 12.44 10.85 11.32 15.83

3-Year Ave Annualized % Return(2010-2012) 6.46 7.91 9.46 10.72



10-Year Standard Deviation of Monthly Returns (2003-2012) 13.1 12.6 9.3 14.8

Annual % Expense Ratio 0.66 0.29 0.24 0.17


7TwelveAnnual Returns

7Twelve10-year Growth of $10,000


Vanguard 500 Index

$19,645

Vanguard Balanced In-dex $19,797

Passive 7Twelve$25,455

Active 7Twelve$26,539

January 1, 2003 to December 31, 2012

Calendar Year Performance

of Passive 7Twelve

7Twelve Core

Model

12 Equally Weighted

Funds

7Twelve Age-Based

50-60

80% 7Twelve10% TIPS10% Cash

7Twelve Age-Based

60-70


7Twelve Age-Based

70 Plus


Vanguard Balanced

Index

60% US Stock40% US Bonds

Investor Profile (Under age 50) (Age 50-60) (Age 60-70) (Over age 70) ???

2003 27.09 22.58 18.07 13.56 19.872004 17.76 15.15 12.54 9.93 9.332005 12.17 10.29 8.42 6.55 4.652006 15.15 12.63 10.11 7.58 11.022007 11.31 10.75 10.20 9.65 6.162008 (24.62) (19.47) (14.32) (9.18) (22.21)2009 24.90 20.87 16.84 12.80 20.052010 14.50 12.22 9.94 7.66 13.132011 (1.01) 0.53 2.06 3.59 4.142012 10.85 9.32 7.79 6.27 11.32

10 YearAnnualized Return

(2003-2012)9.79 8.83 7.78 6.66 7.07

7Twelve Age-Based Models

15-Year Distribution Analysis: 1998-2012$250,000 Initial Account Value on Jan 1, 1998, 5% Initial Withdrawal, 3% Annual Increase in Annual Withdrawal


$0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000

Vanguard 500 Index

Vanguard Balanced Index

7Twelve Age Based 70 Plus

7Twelve Age Based 60-70

7Twelve Age Based 50-60

7Twelve Portfolio

Ending Account Balance in 2012Assuming Annual Rebalancing

Total Amount of 15 Withdrawals = $232,486

New “Age-Based” Allocations as of July 2013

7Twelve Core Model

7Twelve Age-Based 50-60

7Twelve Age-Based 60-70

7Twelve Age-Based 70Plus

Asset Class 7Twelve Age-Based Portfolio Allocation

Large US Stock 8.33% 6.67% 5.00% 3.33%Mid Cap US Stock 8.33% 6.67% 5.00% 3.33%

Small US Stock 8.33% 6.67% 5.00% 3.33%Non-US Stock 8.33% 6.67% 5.00% 3.33%

Emerging Markets 8.33% 6.67% 5.00% 3.33%Real Estate 8.33% 6.67% 5.00% 3.33%

Natural Resources 8.33% 6.67% 5.00% 3.33%Commodities 8.33% 6.67% 5.00% 3.33%

US Bonds 8.33% 6.67% 5.00% 3.33%Inflation Protected

Bonds 8.33% 6.67% 5.00% 3.33%

International Bonds 8.33% 6.67% 5.00% 3.33%Cash 8.33% 26.67% 45.00% 63.33%


Old & New “Age-Based” Allocations15-Year Performance Comparison (1998-2012)


7Twelve 50-60

7Twelve 60-70

7Twelve 70+

Old Model(Cash & TIPS

overweighted)7.48% 6.94% 6.34%

New Model(Only Cash

overweighted)7.04% 6.06% 5.01%

Rebalancing the 7Twelve Portfolioas of December 31, 2012


3-Year Annualized Return




0%

2%

4%

6%

8%

10%

12%

7.91

3.42

9.79

7.957.89

2.53

9.46

7.24

7Twelve with Annual Rebalancing 7Twelve with No Rebalancing

7Twelve Rebalancing Comparison10-Year Annualized % Returns as of December 31, 2012

2003-2012

7Twelve PortfolioMonthly

RebalancingQuarterly

RebalancingAnnual

Rebalancing

9.64 9.83 9.79


15 Calendar Year Total Returns

Active 7Twelve

Passive 7Twelve

Vanguard 7Twelve

T. Rowe Price

7Twelve

Fidelity 7Twelve

Tax Efficient 7Twelve

DFA 7Twelve

1998 0.09 2.37 3.88 0.03 (5.50) 1.72 0.031999 17.07 16.02 14.92 19.32 23.43 15.96 17.342000 11.72 6.77 4.22 5.10 9.15 6.69 8.412001 3.13 (1.66) 0.56 (2.41) 0.57 (2.74) 1.042002 2.26 (0.78) 0.16 (1.57) (0.02) (1.05) (0.41)2003 28.84 27.09 29.82 26.57 27.05 27.10 28.042004 19.86 17.76 15.14 17.71 18.33 18.12 18.222005 13.16 12.17 10.68 12.49 17.95 12.38 13.542006 16.36 15.15 17.44 14.23 16.08 14.97 16.062007 13.79 11.31 11.18 13.82 13.53 11.53 9.482008 (28.22) (24.62) (27.97) (27.87) (30.63) (25.94) (24.90)2009 32.45 24.90 31.79 31.58 32.01 25.51 24.322010 14.52 14.50 16.60 15.24 15.11 14.18 15.582011 (6.30) (1.01) (2.80) (1.16) (3.37) (0.42) (2.07)2012 12.44 10.85 10.53 10.60 13.03 10.58 11.30

3-Year

Annualized Return 6.46 7.91 7.80 8.00 7.92 7.93 8.00

5-Year Annualized Return 2.78 3.42 3.53 3.64 2.86 3.17 3.30

10-Year Annualized Return 10.25 9.79 9.89 10.05 10.40 9.72 9.89

15-Year Annualized Return 9.04 7.95 8.11 7.93 8.59 7.75 8.26 49

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http://www.7twelveportfolio.com/Downloads/Web7TwelveReport.pdf


http://www.7twelveportfolio.com/

http://www.7twelveportfolio.com/Downloads/Web7TwelveReport.pdf

Craig L. Israelsen, Ph.D.

Email: [email protected]

Web: www.7TwelvePortfolio.com



52

mailto:[email protected]

http://www.7twelveportfolio.com/

Fixed Income: What to Do Going Forward?


Historical Performance of US Bonds


19481950

19521954

19561958

19601962

19641966

19681970

19721974

19761978

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

(5)

0

5

10

15

20

25

30

35

Annual Return of US Bonds Federal Discount Rate

34 Year Period 1948-1981Rising Interest Rates

US Bonds 3.83%US Stock 11.00%US Cash 4.49%

31 Year Period 1982-2012Declining Interest Rates

US Bonds 8.82%US Stock 11.14%US Cash 4.72%

Bond Performance in a Portfolio Context

Portfolio Period of Rising Interest Rates34-Year Period from 1948 to 1981

Period of Declining Interest Rates31-Year Period from 1982 to 2012

1-Asset Portfolio100% US Bonds

3.83% Annualized Return4.32% Standard Deviation


2-Asset Portfolio60% Large US Stock

40% Bonds

4-Asset Portfolio40% Large US stock20% Small US Stock

30% Bonds10% Cash









40% Bonds




30% Bonds10% Cash









40% Bonds




30% Bonds10% Cash




Bond Performance in 7Twelve Portfolio

Time PeriodDescription of US Bond

Performance

10-Year Annualized %

Return of US Bonds

10-Year Annualized %

Return of 12-Asset Portfolio

Growth of $10,000 in a Diversified Portfolio

2003-2012 Actual Performance 5.16 9.79 25,455

2003-2012(US bond returns from 1950-1959)

Worst-casePerformance 1.34 9.44 24,654

2003-2012(US bond returns from 1982-1991)

Best-case Performance 14.09 10.48 27,099

Difference between Worst-case and Best-case Bond

Performance1,275 bps 104 bps 2,445


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