Can You Actually Live Outside The Box?

Barron's had a long article about how difficult it has become to diversify a portfolio because of the dominance of mega cap AI and semiconductor companies in indexes like the S&P 500. The article goes on to make suggestions about factors and equal weighting for equities. You could "fix your fixed income" with CDs, treasury bills and money market funds.

Included toward the end of the article was the suggestion to think outside the box by adding a little gold or commodity exposure. 

Not a whole lot of unique ideas there. We build some extreme ideas here to try to help think about how things that really are outside the box could fit in to actually solve a problem a little better than just buying a CD.

I like the idea of barbelling. We've applied this in different ways. The idea I am trying to convey in that picture is a little bit in yield, a little bit in growth and a bunch in exposures/strategies that should compound a little better than T-bills, offer some defensive attributes or maybe both.

The first four names are the yield, the next two are the growth and the rest are the absolute and alts. most of the names are one we use regularly for blogging purposes except maybe Cambria Shareholder Yield (SYLD) as part of the growth allocation. We're not totally selling out for a 15% yield in that sleeve, there's some diversity of risks in that group. For equities, SYLD and IMTM are underweight AI and semiconductors. I chose SYLD because of the manner in which its results differentiate from market cap weighting. SYLD has had years of misery and glory on the way to not great long term results so we're not cherry picking something great. 

There's not much variation from year to year for the 20/60/20 portfolio we're working with today which is good.

But the bar chart sets an expectation that it will lag VBAIX in most individual years. There's plenty of different types of exposures, the mix is legitimately diversified but that doesn't mean actually implementing this sort of concept would be easy to endure. 

Even Claude liked the idea and Claude hates everything. Copilot is a bit of pushover so I went with Claude. The clearest suggested improvement was;

Thinking outside the box requires being willing to actually live outside the box. Experience tells me that is more difficult for people than it sounds. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.