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Roger Gibson Portfolios: Legend of Diversification


This is the article displaying the portfolios by portfolio legend Roger Gibson. Here you will find a description, resources, and performance for the portfolios as well as detailed information on how to implement it yourself.

Roger Gibson Portfolios, Legend of Diversification

Roger Gibson published his seminal book in 1989,  Asset Allocation: Balancing Financial Risk, Fifth Edition: Balancing Financial Risk The book bridges the gap between modern portfolio theory and practical investing.

The book lays out the argument for diversification in understandable simple terms so anyone can understand it.

“In the early 1960s the term asset allocation did not exist.”

– Roger Gibson, Asset Allocation: Balancing Financial Risk

Asset Allocation: Balancing Financial Risk is one of those books that I keep returning to. It is one of the few books that I simply enjoy browsing through. Sure that maybe because I’m a nerd (which I make no excuses for), but it is more likely because the book is just simply fantastic. I always seem to find new nuggets of wisdom in it.

“It is easy for clients to be distracted by investment schemes that promise high returns with little or no risk.”

– Roger Gibson, Asset Allocation: Balancing Financial Risk

The book gives you a foundation for what investing is all about. It gives you a foundation on how to approach investing and what the investing playing field consists of.

In other words, the book hands you the rulebook to investing. Knowing the rules in any filed is pretty important and I am reminded by my Latin teacher that liked to warn me about knowing the Latin grammar rules:

“If you don’t know the rules, you can’t play the game”

– My Latin teacher

Asset Allocation: Balancing Financial Risk, Fifth Edition: Balancing Financial Risk is a great field guide to investing. Combined with Rick Ferri – The Power of Passive Investing: More Wealth with Less Work and All About Asset Allocation you will be an investing powerhouse with more knowledge than 99.9% of all others, including investing professionals (made-up number).

“I still think Gibson’s Asset Allocation is required reading. He does the best job of explaining how diversification with multiple asset class investing brings a portfolio’s annualized return closer to the average return of its components. He makes the strong argument with only 4 or 5 pretty vanilla asset classes. But the logic is critical.”

Roger Gibson has influenced some of the other giants in practical investing including Rick Ferri, William Bernstein, and Larry Swedroe.

Let’s take a look at the sample portfolios Roger Gibson presents in his wonderful book.

Description of Roger Gibson’s portfolios

Roger Gibson presents two portfolios in his book Asset Allocation: Balancing Financial Risk, Fifth Edition: Balancing Financial Risk.

One portfolio with 4 asset classes and another with 5 asset classes.

The portfolios come with very vanilla asset classes:

  • Stocks
  • Foreign stocks
  • Real estate
  • Commodities
  • Bonds

Performance of Roger Gibson’s portfolios

Portfolio nameAsset class count1 year return (2019)Year to date10 year returnCAGR since 1989DrawdownRisk LevelExpense ratioYield
Gibson Five Asset Classes621.16%-0.32%5.98%7.54%-32.05%4 - high risk0.23%2.28%
Gibson Four Asset Classes423.22%-1.39%6.36%7.52%-40.41%5 - very high risk0.27%2.66%

“Successful investing will always be as much of a psychological process as it is a money management endeavor.”

– Roger Gibson

Now, looking at the returns they are not as spectacular as other portfolios on The heavy inclusion of commodities is the cause. Commodities have historically lagged other asset classes.

This is due to their nature. Their price is based on supply and demand and therefore enter speculative territory on par with fx gold and precious metals. Commodities are a non-income producing asset class. That is, they do not generate any income – on the contrary, we spend money to preserve and store commodities. Finally, historically commodities have fallen in price over time not risen, making them a negative-sum investment over time.

This is because we humans are so ingenious and always getting better at pulling raw materials out of the ground, breeding farm animals, etc. See the  Simon-Ehrlich wager for more information. This argument should also stop you from making investments in buying gold (unless you are preparing for a zombie apocalypse, but then again, the gold will weigh you down and then what are you going to do?)

“But the long term trend for metals at least is downwards”

– Economist Tim Worstall

Asset Allocation of Roger Gibson’s portfolios

Gibson Five Asset Classes                           

  • 20.00%  US Total Stock Market   (VTI)
  • 20.00%  REITs     (VNQ)
  • 20.00%  International All-World ex-US     (VEU)
  • 14.00%  Total US Bond Market    (BND)
  • 20.00%  Commodities     (DBC / GSG)
  • 6.00%    Non-US Bonds   (BNDX)

Gibson Four Asset Classes                          

  • 25.00%  US Large Cap Value         (VTV)
  • 25.00%  REITs     (VNQ)
  • 25.00%  International Developed Blend      (VEA)
  • 25.00%  Commodities     (DBC / GSG)

Check the best mutual funds and ETFs here.

Resources for Roger Gibson’s portfolios

Roger Gibson’s book is required reading for anyone wanting to understand how diversification works.

Roger Gibson established his wealth management firm Gibson Capital. They are extremely fiduciary literate and the firm has high ethical standards with plenty of room for having a relaxed attitude towards asset management.


What do you think of Roger Gibson’s portfolios?

Are they lackluster or do they appeal to your diversification needs?

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