The Ivy 5 Portfolio, Meb Faber’s Diversifying Winner

The Ivy Portfolio can be built with 5 ETFs. The portfolio is exposed to 20% bonds, 60% equities, and 20% commodities. It is a moderate risk portfolio.

For the past 10 years, the Ivy Portfolio it has returned 6.08% with a standard deviation of 11.76%. Last year it returned 21.32%. The dividend yield is 2.36%. The 30-year return is 7.54%.

Here is how you build the Ivy Portfolio

  • 20.00% US Total Stock Market (VTI)
  • 20.00% International Developed Stocks (VEU)
  • 20.00% US Total Bond Market (BND)
  • 20.00% US REITs (VNQ)
  • 20.00% Commodities (DBC)

What is the return of of Meb Faber’s Ivy 5 portfolio?

Below you can see the return of Meb Faber’s Ivy 5 portfolio

NameAsset class countYear to dateReturn in 201910 year returnCAGR since 1989 (%)Risk levelExpense ratio
Meb Faber Ivy 5 Portfolio5-2.6321.326.08%7.5430.22%

What is the Meb Faber’s Ivy 5 portfolio?

The portfolio is featured in Meb Faber and the late Eric W. Richardson’s book. It 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.

Meb Faber’s Ivy 5 portfolio is a standard portfolio. It has exposure to most major asset classes. In many ways, it resembles a global market portfolio.

Asset Allocation Meb Faber’s Ivy 5 portfolio

meb-faber-ivy-5-portfolio

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.

  1. Variation one: a portfolio of 10 asset classes instead of 5. See this post for details.
  2. Variation two: Timing model 

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?

If you are a European investor you need to buy European ETFs. We list 47 best ETFs in our article What Are The Best ETFs For European Investors? (Here Is 47).

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:

  • The Ivy 5 is simple to understand
  • The investment portfolio is global and well-diversified
  • The Ivy 5 portfolio is 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.
  • The Ivy 5 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.
  • The investment portfolio may not be suitable for some people 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

 

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

Related questions

What is Meb Faber’s timing strategy?
Meb Faber uses a 10-month average for his timing strategies. If the asset price is below the 10-month average then it is sold and if it is above then the asset is bought (or held).

What is the Trinity portfolio?
The Trinity portfolio is a multi-strategy portfolio by Meb Faber. Is consists of three parts. The first part is 1) assets diversified across a global allocatoin, 2) assets that are tilted toward investments value and momentum, and 3) exposure to trend following.

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