How to Get 9% Returns with Half the Market Volatility
Episode
39 min
Read time
2 min
Topics
Investing, Fundraising & VC, Sales & Revenue
AI-Generated Summary
Key Takeaways
- ✓The Awesome Portfolio Structure: Allocate exactly 20% each to five ETFs: VTI (total stock market), BND (total bond market), IAU (gold), TBIL (T-bills), and VNQ (real estate). Total expense ratio is 11.8 basis points — $11.80 per $10,000 invested. Rebalance once annually back to equal 20% weightings regardless of market movements.
- ✓Historical Performance vs. Risk Tradeoff: The Awesome Portfolio returns approximately 9% annually — roughly 1-2% less than the S&P 500 — but delivers half the market volatility. The worst single-year drawdown was negative 12% in 2022. The second worst was negative 9% during the 2008 financial crisis, making panic-selling far less likely.
- ✓Bond Opportunity at Current Yields: 30-year Treasury bonds at 5.3% and 10-year notes at 4.7% represent historically cheap valuations. A rate drop from 5% to 3% generates approximately 30% capital gains on a 30-year bond, given its duration of roughly 15. Investors avoiding bonds due to inflation fears are repeating the same behavioral mistake seen at every market bottom.
- ✓Cash as a Strategic Asset: Holding 20% in T-bills serves three functions: smoothing overall portfolio volatility, generating current yield, and maintaining liquidity as an option to deploy capital opportunistically. Without liquid cash reserves, investors are forced to sell appreciated assets — triggering taxable events — to fund time-sensitive opportunities like real estate down payments or private investments.
- ✓Human Behavior as the Constant Risk: A Finnish military study found higher-IQ investors outperformed lower-IQ investors by approximately 5% annually, largely through better market timing. The core behavioral problem: investors treat financial assets like Giffen goods, buying more when prices rise and avoiding assets when they fall — the exact opposite of rational purchasing behavior seen with ordinary consumer goods.
What It Covers
Jared Dillian, 28-year Wall Street veteran and former Lehman Brothers ETF trading head, presents the "Awesome Portfolio" — a five-asset allocation strategy using stocks, bonds, gold, cash, and real estate that has historically returned approximately 9% annually with half the volatility of the S&P 500.
Key Questions Answered
- •The Awesome Portfolio Structure: Allocate exactly 20% each to five ETFs: VTI (total stock market), BND (total bond market), IAU (gold), TBIL (T-bills), and VNQ (real estate). Total expense ratio is 11.8 basis points — $11.80 per $10,000 invested. Rebalance once annually back to equal 20% weightings regardless of market movements.
- •Historical Performance vs. Risk Tradeoff: The Awesome Portfolio returns approximately 9% annually — roughly 1-2% less than the S&P 500 — but delivers half the market volatility. The worst single-year drawdown was negative 12% in 2022. The second worst was negative 9% during the 2008 financial crisis, making panic-selling far less likely.
- •Bond Opportunity at Current Yields: 30-year Treasury bonds at 5.3% and 10-year notes at 4.7% represent historically cheap valuations. A rate drop from 5% to 3% generates approximately 30% capital gains on a 30-year bond, given its duration of roughly 15. Investors avoiding bonds due to inflation fears are repeating the same behavioral mistake seen at every market bottom.
- •Cash as a Strategic Asset: Holding 20% in T-bills serves three functions: smoothing overall portfolio volatility, generating current yield, and maintaining liquidity as an option to deploy capital opportunistically. Without liquid cash reserves, investors are forced to sell appreciated assets — triggering taxable events — to fund time-sensitive opportunities like real estate down payments or private investments.
- •Human Behavior as the Constant Risk: A Finnish military study found higher-IQ investors outperformed lower-IQ investors by approximately 5% annually, largely through better market timing. The core behavioral problem: investors treat financial assets like Giffen goods, buying more when prices rise and avoiding assets when they fall — the exact opposite of rational purchasing behavior seen with ordinary consumer goods.
Notable Moment
Dillian reveals that his contrarian approach to portfolio construction stems directly from personal loss — his net worth was cut in half between 2007 and 2009, partly because he held significant Lehman Brothers stock that went to zero, motivating him to build a permanently lower-stress investment structure.
Episode Transcript
Have you ever tried to make a good portfolio and just have struggled with exactly how to compose it? We're gonna teach you today how to make a conservative portfolio, a good portfolio, a portfolio that earns returns, and might even be an awesome portfolio. Stay tuned. See you on the other side. Best thing that's ever happened to you financially. Go. Easy. Sold my car on Carvana. Amazing offer. Really? I hit 200 on a scratcher. Did the scratcher come to your house and hand you a check? No. How many scratchers did you hit to get that? I hit a button on carvana.com once. Okay. That's fair. It's like the lottery, except you always win. Not like the lottery at all, actually. Exactly. Inexplicably good. Offers worth bragging about. Sell your car today on Carvana. Pickup fees may apply. This episode is brought to you by Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales, using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at accenture.com slash Spotify. You're tuned in. You're tuned in. To the investing for beginners podcast. Investing for beginners podcast. The show for the long term investor. We cut through the noise to focus on what works. Compounding, discipline, and the conviction to buy wonderful businesses and stick with them. Your path to financial freedom. Start now. Welcome to the investing for beginners podcast. I have another fun show for us today and have a guest. We have Jared Dillian joining us. He's one of the industry's most original entertaining contrarian voices, also a master of market psychology and been called the doctor house of trading. So thank you for joining us today, Jared. Thank you. Thank you very much. So contrarian, thinker, you've been doing a daily newsletter since 2008, I believe. Yep. What do today's investors misunderstand about past markets? Well, you know, the funny thing about the markets is, I mean, I've been in the business for, gosh, twenty eight years, long time, and I've seen a lot of different stuff. And the whole microstructure of the market has changed drastically over time. Like, I'm actually old enough that when I first started, in trading, stocks were in fractions. This is before decimalization. I was actually trading, like, sixteenths and eighths and quarters and stuff like that. Like, you know, decimalization happened in 2,002, so I was trading stocks in fractions. Also, I was on a open outcry trading floor filling out paper tickets. None of it was computerized. Bid offer spreads were wide. You know, now, like, the really liquid stocks like Apple are typically a penny wide bid offer spreads, but, you know, you you would have bid offer spreads of a quarter, you …
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Books, tools, and gear mentioned in this episode
SignalCast may earn commission on purchases via these links.
Tools
- VTIRecommended
by Vanguard
“Allocate exactly 20% each to five ETFs: VTI (total stock market), BND (total bond market), IAU (gold), TBIL (T-bills), and VNQ (real estate).”
- BNDRecommended
by Vanguard
“Allocate exactly 20% each to five ETFs: VTI (total stock market), BND (total bond market), IAU (gold), TBIL (T-bills), and VNQ (real estate).”
- IAURecommended
by iShares
“Allocate exactly 20% each to five ETFs: VTI (total stock market), BND (total bond market), IAU (gold), TBIL (T-bills), and VNQ (real estate).”
- TBILRecommended
by iShares
“Allocate exactly 20% each to five ETFs: VTI (total stock market), BND (total bond market), IAU (gold), TBIL (T-bills), and VNQ (real estate).”
- VNQRecommended
by Vanguard
“Allocate exactly 20% each to five ETFs: VTI (total stock market), BND (total bond market), IAU (gold), TBIL (T-bills), and VNQ (real estate).”
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