The Ivy Portfolio featured in Meb Faber, and the late Eric W. Richardson’s book seeks to mirror the asset allocation of the best endowment funds like Yale, Harvard, and Princeton. The Ivy Portfolio incorporates traditional assets like stocks and bonds with commodities and REITs. It is a portfolio with global exposure.
The Ivy 5 Portfolio: Meb Faber’s Diversifying Winner
Article Contents
- The Ivy 5 Portfolio: Meb Faber’s Diversifying Winner
- Asset Allocation
- Returns and risk for Meb Faber’s Ivy 5 Portfolio
- Benchmarks
- Meb Faber's Ivy 5 Portfolio
- Variations on Meb Faber’s Ivy 5 Portfolio
- Building the portfolio
- Portfolio allocation for Meb Faber's ivy 5 portfolio
- How we select the right ETFs
- Advantages and disadvantages of the Ivy 5 Portfolio
- Resources
- Suggestions for your next steps
- Summary
Asset Allocation
Returns and risk for Meb Faber’s Ivy 5 Portfolio
Below are popular benchmarks you can compare the portfolio against.
The S&P 500 is representative of the broad market and is a very common benchmark.
The 60/40 portfolio is a standard benchmark. It consists of 60% stocks and 40% bonds. It is a very common benchmark to use when comparing a portfolio composed of stocks and bonds.
Benchmarks
These are common benchmarks to compare portfolios against.| Name | Year to date | Return in 2019 | 10 year return | CAGR since 1989 | Draw down | Risk level | Expense ratio | Yield |
|---|---|---|---|---|---|---|---|---|
| S&P 500 | -19.89% | 31.46 | 13.52% | 10.54 | -37.63% | 5 | 0.04% | 1.79% |
| 60/40 Portfolio | -11.93% | 21.97 | 9.68% | 9.09 | -20.13% | 2 | 0.03% | 1.91% |
Meb Faber's Ivy 5 Portfolio
Performance of Meb Faber's Ivy 5 Portfolio| Name | Year to date | Return in 2019 | 10 year return | CAGR since 1989 | Draw down | Risk level | Expense ratio | Yield |
|---|---|---|---|---|---|---|---|---|
| Meb Faber's Ivy 5 Portfolio | -19.55% | 21.32 | 6.08% | 7.54 | -31.51% | 4 | 0.22% | 2.37% |
Variations on Meb Faber’s Ivy 5 Portfolio
In their book, Meb and Eric describe several ways to construct an Ivy portfolio. Variations include the Ivy 10 Portfolio, which you can find here. They also describe various timing models for the portfolios. The timing model uses a simple moving average to decide whether to be invested in an asset class or not.
- Variation one: a portfolio of 10 asset classes instead of 5. See this post for details.
- Variation two: Timing model
Building the portfolio
Below you can see the asset allocations for the portfolio. You can also see if the portfolio has a socially responsible investing (ESG) variant portfolio. You can read more about socially responsible investing (ESG) investment portfolios in this post.
To build the portfolio yourself, go to our best in class ETF page to see which ETF you should choose for a particular asset class. There you can also see which socially responsible investing ESG ETFs you should select.
Asset allocation for the Ivy 5 Portfolio
Portfolio allocation for Meb Faber's ivy 5 portfolio
| Name | ESG portfolio available? | Total US Market | REITs | International Developed | Total Bond Market | Commodities |
|---|---|---|---|---|---|---|
| Meb Faber's Ivy 5 Portfolio | No | 20.00% | 20.00% | 20.00% | 20.00% | 20.00% |
If you’re looking for a more advanced portfolio, take a look at the Ivy 10 Portfolio.
How we select the right ETFs
There are a lot of ETFs out there. Most of them can be discarded because:
- They are too expensive
- They hold too few assets and are therefore too illiquid
- They do not meet the criteria for representing the asset class they are supposed to mirror.
We have carefully selected an ETF for each asset class that the portfolios on portfolioeinstein.com use. If you want to read more about our selection process and see what we consider the best ETFs please visit our article What Is The Best ETF?
As of 2020 we also track socially responsible investing ESG portfolios. Socially responsible investing (ESG) portfolios prioritize investing that puts an emphasis on environmental, social and corporate governance issues.
You can find the socially responsible investing ESG ETFs in the same article.
Advantages and disadvantages of the Ivy 5 Portfolio
Advantages:
- Simple to understand
- Global and well-diversified
- Constructed by Meb Faber – a respected financial quant that almost single-handedly has revived market timing.
- The portfolio makes a bet on commodities, which may be what you intend.
- You get a portfolio that resembles that of Yale and Harvard. David Swensen of Yale has had astonishing returns using a similar model.
Disadvantages:
- The bet on commodities may not be desirable.
- The inclusion of commodities makes the portfolio slightly more expensive due to the higher expense ratio of commodity ETFs.
- May be too heavy on hard assets such as commodities and REITs (40% in total). They have done great in the past, but their performance may not continue.
- May not be suitable for some as the premise for the endowments holding a similar portfolio is holding the assets “forever.” Private investors do not have forever. Most have between 5-50 years.
Resources
Go here for a rebalance excel worksheet.
Also, be sure to visit the Meb Faber site. It is a wealth of information and inspiration. His podcast is also excellent (the first episode is absolutely awesome as he runs down what investing is really about.
Suggestions for your next steps
Finding the correct portfolio is hard. Maintaining your portfolio is also daunting. If you are still in doubt about which portfolio to choose, we suggest you read our article How To Invest Money: 5 Simple Steps That Work For Anyone
If you have already committed to a portfolio – good for you! If you need help maintaining the portfolio you will find our rebalance worksheet useful. Rebalancing your portfolio lowers your risk and may even provide higher returns in the long run.
You can find the rebalance worksheet in our article Here Is The Most Easy To Use Portfolio Rebalance Tool
Summary
The Ivy 5 Portfolio is a well-diversified global portfolio that offers returns like that of top investment endowments. The Yale endowment fund has $27.2 Billion under management under the guidance of David Swensen. David Swensen is a rock star among portfolio managers.
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