Recapping the Model 'Bucket' Portfolios

"Do you still recommend the model portfolios you put out a few years ago?"

I've received variations on this general question over the past several months. The short answer? Yes. By giving the portfolios a permanent home with their own landing page on Morningstar.com, the idea is that the portfolios can readily be accessed. As such, they should be up to date at any given point in time. If a material change at one of the holdings has resulted in a change in its Analyst Rating, or I've changed my thinking on its suitability in the portfolio, you can expect to see those changes reflected in short order.

That said, readers shouldn't expect to see frequent changes in the portfolios for a few reasons. For one thing, my approach to asset allocation with these portfolios is strategic and hands-off: I employed Morningstar's Lifetime Allocation Indexes to help guide the portfolios' exposures to the major asset classes, and these indexes don't change frequently. Moreover, I relied on Morningstar Medalist ratings for the portfolios' investment choices, and one of the implicit goals for the medalists is stability. In the spirit of Warren Buffett, Morningstar's research analysts like to recommend funds and ETFs that you could hold "forever."

Nonetheless, many of these portfolios are two years old or more, so it's a good time to review their positioning and holdings. In this week's article, I'll review the various mutual fund and ETF "bucket" portfolios I've created for people who are already retired—or getting ready to. Note that all of the portfolios discussed below are free-range—that is, they pick and choose among holdings from multiple providers. Investors who prefer to do business with a single firm—say Vanguard or Schwab—can find company-specific portfolios on the model portfolios main page. This article includes more details on the bucket approach to retirement-portfolio construction.

Mutual Fund Bucket Portfolios (Aggressive, Moderate, Conservative)

Original launch date: August/September 2012

Changes:

These three portfolios, which consist of traditional mutual funds and are geared toward taxable accounts, have undergone a few changes since their initial creation. The most significant was swapping

Additionally, while my original bucket portfolios relied on

Notably Strong Performers:

The portfolios' two domestic equity holdings,

Notably Poor Performers:

Harbor Commodity Real Return HACMX, a small slice of the portfolio, has been the worst-performing holding in these portfolios over the past three and a half years. A near-clone of

ETF Bucket Portfolios (Aggressive, Moderate, Conservative)

Original Launch Date: September 2012

Changes:

The original portfolio included

Notably Strong Performers:

As with the traditional mutual fund portfolios, the ETF portfolio's domestic-equity funds have been standouts.

Notably Poor Performers:

As with the bucket portfolios composed of traditional mutual funds, the ETF portfolios' commodities exposure has done them no favors, but we're retaining our small, 5% stake in PowerShares DB Commodity Tracking DBC for its diversification potential as well as the possibility that it will earn its keep in an inflationary environment. The portfolios' noncore fixed-income positions—

Tax-Efficient Bucket Portfolios

Original Launch Date: February 2015

Changes: These portfolios have not undergone any changes since their launch just over a year ago.

Notably Strong Performers:

The core equity fund in these portfolios,

Notably Poor Performers:

Because the portfolios' asset-class exposures are quite "vanilla," no single position has performed as badly as the commodities, emerging markets, and junk-bond holdings in the traditional mutual fund and ETF portfolios. (Those categories all tend to be quite tax-inefficient, so I didn't include them in the tax-efficient portfolios.)