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

Global Market Portfolio

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This is the article displaying the Global Market portfolios. Here you will find a description, performance, and resources for the portfolios as well as detailed information on how to implement them yourself.

The Global Market Portfolio, What Is The Return Of Earth?

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.

Let’s see how the Global Market portfolios perform.

Performance of the Global Market portfolio

NameAsset class countYear to dateReturn in 201910 year returnCAGR since 1989 (%)Risk levelExpense ratio
The Global Market Portfolio, (GMP) CREDIT SUISSE8-2.54%18.627.60%8.3610.10%
The Global Market Portfolio, Financial Engines 200715-8.82%20.248.12%8.4520.09%

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

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

     

    Conclusion

    The Global Market portfolio is hard to encapsulate but at least a few attempts at getting it right have been presented. The portfolios are well-diversified (obviously) with good returns.

    The portfolio from financial engines has 15 asset classes. Would you construct a portfolio with that many asset classes?

    What do you think the valuation of Earth should be?

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