The Global Market Portfolio, What Is the Return of Earth?

Global Market Portfolio

The Global Market Portfolios can be built with 10-15 ETFs. They are exposed to 70% equities and 30% bonds. They are medium-risk portfolios.

For the past 10 years, the The Global Market Portfolio, Financial Engines 2007 has returned 8.12% with a standard deviation of 11.33%. The dividend yield is 1.95. The 30-year return is 8.45%. Year to date the The Global Market Portfolio, Financial Engines 2007 has returned 1.13%.

What is the return of the Global Market portfolio?

Below you can see the return of the global market portfolios.

NameAsset class countYear to dateReturn in 201910 year returnCAGR since 1989 (%)Risk levelExpense ratio
The Global Market Portfolio, (GMP) CREDIT SUISSE85.5718.627.60%8.3610.10%
The Global Market Portfolio, Financial Engines 2007151.1320.248.12%8.4520.09%

Both portfolios are excellent. They have massive diversification and low drawdowns.

What is The Global Market Portfolio?

The Global Market portfolio is the weighted sum of every asset in the world.  This definition includes:

  • Publically tradeable stocks from all countries.
  • Privately held stock from all countries think start-ups, private equity.
  • Corporate bonds from all countries.
  • Government bonds from all countries.
  • Real estate from all countries.
  • Land ownership from all countries including timber and grasslands.

This sounds easy enough but it becomes difficult to contain that definition when reality hits. How finely granular do we measure assets?

  • And what constitutes assets in the first place?
  • Does it include intangibles like trademarks?
  • Does it only include investable assets? What does that even mean?
  • Does it include private equity as well?
  • Does it include human capital?

What is the return of Earth?  

No matter how you look at making a Global Market portfolio you need to set up boundaries of what you include and what you exclude from the Global Market portfolio. However, it is a market portfolio so the assets in the portfolio need to be accessible on some market! Right?

We could hand over the definition to a certified accountant. They usually have a knack for cutting out the fluff with a clean cut. Maybe an accountant would say that anything that can generate a return and can be bought and sold should be considered into the Global Market portfolio. But not everything that can generate a return can be bought and sold and not everything that can be bought and sold generates a return!

Why not just invest along the weightings of the global market cap weighted portfolio? The main difficulty is that it is hard to determine exactly what the exact weightings are, but a number of researchers have come pretty close with a ballpark estimate.

– Meb Faber, Global Asset Allocation: A Survey of the World’s Top Asset Allocation Strategies.

The accountants’ version of how to construct a Global Market portfolio is probably as close as we are going to get a picture of what a Global Market Portfolio looks like. If it were just a Global Portfolio a better way would be to put a price on the entire globe. On the entire Earth.

Let’s imagine a galactic civilization. This civilization of space-faring aliens trades planets like stocks just like we share companies’ stock. Each planet is an asset that hopefully generates a return. How much would the Earth be worth? How much would Earth be worth in the future? What is the return of Earth?  

We’ll back off from discussing what return means in the context of galactic aliens that is an entirely new and abstract discussion. 

The Global Market portfolio changes over time as illustrated below. The Global Market portfolio from the paper by Ronald Q. Doeswijk, Trevin Lam and Laurens Swinkels will be added later.

global-market-portfolio-changes
Source: Doeswijk et. al. in Historical Returns of the Market Portfolio

Let’s get practical now and see some actual portfolios.

Description of the Global Market portfolio

The 2008 book The Intelligent Portfolio: Practical Wisdom on Personal Investing from Financial Engines by Christopher L. Jones presents a Global Market portfolio. Financial Engines is now called Edelman Financial Engines. It has $200 billion under management (2020). Christopher L. Jones is the CIO at Financial Engines. The portfolio presented is from the vantage point of a U.S.-based investor. This means that the U.S. portion of assets is much more broken down. It has small-caps and mid-cap caps for example. For international assets, they are lumped into a few categories like Europe and the Pacific.

The Global Market portfolio from Credit Suisse is more condensed. It is presented in Meb Faber’s book Global Asset Allocation: A Survey of the World’s Top Asset Allocation Strategies.

His source is from Credit Suisse, Global Wealth Databook 2014.

Asset Allocation for the Global Market portfolio

The Global Market Portfolio, (“GMP”) Credit Suisse

This portfolio is part of Portfolio Einstein Gold, Premium Portfolios. 

The Global Market Portfolio, Financial Engines 2007      

  • 13.00%  US Large Cap Value (VTV)
  • 13.10%  US Large Cap Growth (VUG)
  • 3.70%    US Mid Cap Value (JKI)
  • 3.70%    US Mid Cap Growth (IJK)
  • 1.80%    US Small Cap Value (VIOV)
  • 1.80%    US Small Cap Growth (IJT)
  • 2.40%    Emerging Markets (VWO)
  • 8.10%    Pacific Stocks (VPL)
  • 15.80%  European Stocks (VGK)
  • 1.10%    Long-Term Treasuries (TLT)
  • 5.30%    Intermediate-Term Treasuries (VGIT)
  • 6.20%    Total US Bond Market (BND)
  • 2.60%    Cash (money market fund) (BIL)
  • 3.40%    Corporate Bonds (LQD)
  • 18.00%  Non-US Bonds (BNDX)

Check the best mutual funds and ETFs here.

Resources for the Global Market portfolio

Get a primer on what a Global Market portfolio is from the paper Historical Returns of the Market Portfolio.

Read about global allocation from Meb Faber’s excellent book Global Asset Allocation: A Survey of the World’s Top Asset Allocation Strategies.

Find out how to predict future returns (I’d like to do that!) in the book The Intelligent Portfolio: Practical Wisdom on Personal Investing from Financial Engines.

If you really want to impress clients, friends, and family you should pick up the fabulous Triumph of the Optimists: 101 Years of Global Investment Returns. It is a beautiful and fascinating dictionary-like tome. It contains historical investment returns for almost all countries of the world. It is updated each year by Credit Suisse. Warning: It is expensive!

triumph-of-the-optimists

 

Related questions

How much of a portfolio is international?

Approximate 45% of all the world’s stocks are international. The USA stock market accounts for 55% of all the world’s stock capitalization.

Should I own international stocks?

Yes, you should at least have 10-20% international stocks. However, John Bogle founder of Vanguard noted that about 30% of revenue from American companies is collected from overseas trade. John Bogle hereby suggested that you are diversified internationally if you hold American companies. 

What are the types of portfolio investment?

The most important types of portfolio investments are stocks, bonds, and REITs (real estate). Your portfolio typically contains more stocks than bonds.

 

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