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Greetings Jeff,

http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7BC9D25440%2D0561%2D4172%2D9E92%2D90DBEEE1613A%7D is a link to(Note that there is a graphic at the other posting that isn't here but anyway):

"The Couch Potato
Scott Burns' Couch Potato Portfolio has been closely watched since 1991. Burns is a syndicated columnist with Dallas Morning News. You can track the glacial "no-news-in-good-news" progress of the portfolio on Burns' Web site, where he reviews it in an eagerly anticipated annual feature event.

The Couch Potato Portfolio is so simple it's shamelessly embarrassing. Only two funds in a 50-50 asset allocation: Vanguard 500 Index (VFINX: news, chart, profile) and Vanguard Total Bond Fund Index (VBMFX: news, chart, profile). For the more aggressive couch-bound, Burns offers the Sophisticated Couch Potato Portfolio with a 75-25 asset allocation in the same two funds.

In his 2001 update, Burns reports that "the traditional 50-50 Couch Potato lost only 1.80 percent compared to the 11.32 percent loss suffered by the average domestic equity fund." In other words, the Couch Potato Portfolio beat the market by more than 10 percent last year.

In addition, "over the last 15 years the 50-50 Couch Potato provided an annualized compound return of 10.96 percent. The 75-25 CP provided a compound return of 12.30 percent. The average balanced fund returned 9.45 percent and the average domestic equity fund returned 11.85 percent." Again, pure laziness wins in the long run too.

The Couch Potato Portfolio is definitely not going to win applause from Wall Street's commissioned brokers or from America's top day traders. They, of course, will laugh at this clearly no-adrenaline strategy to the ultra-sophisticated science of getting rich in the stock market.

The No-Brainer

This simple portfolio is the brainchild of William Bernstein, a financial adviser, SmartMoney columnist and author of the Intelligent Asset Allocator. I call it the "No-Brainer Portfolio" because Dr. Bernstein is not only one of the more sophisticated financial analysts around; as a practicing neurologist he has a unique understanding of the workings of the brain.

When it comes to investing, however, Bernstein is a no-nonsense, keep-it-simple strategist: "If, over the past 10 or 20 years, you had simply held a portfolio consisting of one quarter each of indexes of large U.S. stocks, small U.S. stocks, foreign stocks and high quality U.S. bonds, you would have beaten over 90 percent of all professional money managers and with considerably less risk." Yes, it beats 90 percent of the pros.

Bernstein's No-Brainer Portfolio averaged 10.8 percent the past 10 years: From Vanguard's $71 billion S&P 500 Index fund averaging 13.2 percent annually over the past 10 years; Vanguard's $3.4 billion Small-Cap Index (NAESX: news, chart, profile), averaging 11.5 percent; Vanguard's $4.2 billion European Stock Market Index (VEURX: news, chart, profile) averaging 10.4 percent; and Vanguard's $14.6 billion Total Bond Market Index (VBMFX: news, chart, profile), averaging 7.3 percent the past decade.

Get it? You don't need the super-skills of a neurologist to build a No-Brainer Portfolio. And if you want more, check out Bernstein's winning nine-fund "Coward's Portfolio" which he launched several years ago.

The Coffeehouse

Bill Schultheis, a former Salomon Smith Barney broker-turned-financial-adviser, published The Coffeehouse Investor a few years ago, an easy-to-read little book about how to build a winning portfolio using passive index funds.



Schultheis tells us his Coffeehouse Portfolio "consists of a 60-40 stock-bond split, with the bond portion reflecting an intermediate-term corporate bond index, and the equity portion equally divided between the S&P 500 Index, Large Value Index, Small Index, Small Cap Value Index, MSCI EAFE International Index, and a REIT index."

We reviewed the passive Coffeehouse Portfolio recently, noting that its average 5.3 percent return the past two years not only beat the S&P 500 Index ($SPX: news, chart, profile), it also beat the average of the U.S. hedge funds, Wall Street's best offerings for the super-rich.

Several readers challenged the Coffeehouse Portfolio as merely a great bear market performer because the data was for 2000-2001. So I went back to the coffeehouse and asked Schultheis to supply performance data for the long-term. Back came the detailed Excel spreadsheets.

It turns out that with annual rebalancing, a $100,000 investment allocated in the Coffeehouse Portfolio back in 1991 would have grown to $340,728 by year-end 2001. And folks, that's an average 11.79 percent annual return, handily beating the market. "

I would note that there is a bond allocation in these ranging from 25-50% that Paul Farrell doesn't really seem to note but those of us who know our asset allocation ideas should be aware of this.

Regards,
JB
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