The Gone Fishing’ Portfolio: Book Notes

This post contains my personal notes from the book, The Gone Fishin’ Portfolio by Alexander Green.

1. The Gone Fishin’ Portfolio is a portfolio made up of various asset classes that one can invest using index funds.

2. To invest, one needs to save money. To save money, one needs to decrease spending.

3. Once we have saved enough money, it is better to invest by ourselves. We should manage our own money.

4. We should also realise that we cannot gain an edge by trying to time the market. Great investors like Peter Lynch, John Templeton and Warren Buffet affirm this.

5. Therefore we should use a system based on the notion that nobody knows what the market is going to do next.

6. The stock market will fluctuate and will fluctuate violently sometimes. But historically the stock market have given the best long-term returns and will most likely do so in the future as well.

7. The best way to invest in the stock market is by using Vanguard Index funds because it offers the lowest cost in the industry.

8. There are six factors that will decide the long-term value of your investment portfolio: the amount of money you save, the length of time it compounds, your asset allocation, the annual return on those assets, the investment expenses you absorb, and the amount of taxes you pay.

9. You cannot control the annual return of your portfolio. But you have control over the rest.

10. Your asset allocation is the most important factor that determines your long-term return. Asset allocation means having a diversified, strategic mix of non correlated assets that will boost returns while lowering risk.

11. The Gone Fishin’ Portfolio’s basic allocation is as follows:

  • US Total Stock Market-15%
  • US Small Cap-15%
  • Emerging Markets-10%
  • Europe-10%
  • Pacific-10%
  • High-yield Corporate Bonds-10%
  • Short-Term Investment Grade Bonds-10%
  • Inflation Protected Securities-10%
  • REIT Index-5%
  • Precious Metals Equity-5%

12. Two asset classes which are different from other asset allocations is the inclusion of high yield corporate bonds and precious metals equity. High yield bonds have given a higher return because of default premium. And over the very long run, precious metal equity have given returns that are greater than 10%. That is the reason for inclusion( although you can give counter arguments as well)

13. The other important step is rebalancing every year. (But for small accounts, this can involve a lot of transaction costs, in my opinion).

14. The main advantage of using an investment approach like the Gone Fishin’ Portfolio is that it helps you avoid the four most common investment pitfalls:

  • Being too conservative
  • Being too aggressive
  • Trying-and-failing to time the market
  • Unwise delegation

15. Taxes decrease returns and one should try to decrease this as much as possible. You can keep tax-inefficient investments- such as bonds, REITS, and small-cap funds- in your tax deferred retirement accounts. You can also use tax managed accounts and wait for more than a year to rebalance to avoid short-term capital gains.

16. You can also use ETFs to invest in asset classes. For high yield bonds you can use iShares iBoxx High Yield Corporate Bond, for TIPS you can use iShares Lehman TIPs and for precious metal equity you can use Market Vectors Gold Miners. The other asset classes are available through Vanguard, and recently Vanguard also has a TIPS ETF.

17. You have to have realistic expectations. You can withdraw 4% of the money you have accumulated every year in retirement and keep investing in the Gone Fishin’ Portfolio to not run out of money till you die.

18. There are some important things to keep in mind. You have to realise when you invest this way, your portfolio will have a lot of fluctuations. It will not rise steadily like a savings account. Automating your investments and rebalancing unemotionally helps you take advantage of the market’s fluctuations. And finally, the ability to sit quietly and follow the plan is most important. Not looking at your portfolio too often is helpful. Remembering that you own an interest in all the major asset classes and companies is also helpful.

19. Time, not money is our most precious resource. Having a simple to execute portfolio frees up time for what you really want to do with your life.