Portfolio 2 of 6
Simple lean
Seventy percent in the one fund that owns the world's stock market, and thirty percent in three funds that lean toward companies that are cheap for their profits and toward shares that have been rising. About half the edge of the full lean, with less than half the funds.
Probably A modest lean has a plausible case. What it earns from here is uncertain.
What you buy
| Fund | What it holds | Share | Fee on $10,000 | Account |
|---|---|---|---|---|
| VT Vanguard Total World Stock ETF | Every listed company in the world | 65% | $6 | Any account |
| AVLV Avantis U.S. Large Cap Value ETF | Large US companies that are cheap and profitable | 15% | $15 | Taxable or retirement |
| DFIV Dimensional International Value ETF | Large foreign companies that are cheap and profitable | 10% | $27 | Taxable or retirement |
| SPMO Invesco S&P 500 Momentum ETF | The hundred large US companies whose shares have been rising | 10% | $13 | Either |
VT is portfolio 1, every listed company in the world in one fund. The other three funds are the lean. AVLV buys large US companies that are cheap for what they earn, and DFIV does the same abroad; the profit test is what separates them from a plain value fund, which over the last ten years lagged the market by almost 3% a year while these kept up with it. SPMO holds the hundred large US companies whose shares have risen most over the past year. Cheap stocks and rising stocks tend to have their good years at different times, which is why a little of both is here.
What this version leaves out, against the full lean: small companies (AVUV, AVDV), emerging-market value (AVES), foreign momentum (IDMO), and the heavier lean toward foreign stocks. Those differences change what you own, what it costs and how long it can trail the market. They also add five funds.
There is a three-fund way to get more of the lean back: VT 55, AVGV 35, SPMO 10. AVGV is one Avantis fund that holds six of its value funds, large and small, at home and abroad, for 0.26% a year. Modelled from those holdings it beat this four-fund version by about a quarter of a percent a year on both histories, with a slightly deeper worst fall, and still trailed the full lean by about half a percent. The model treats AVGV as the sum of its parts, and one of those parts has no fitted record, so this is a reasoned option rather than a measured one.
What $10,000 did
- $10,000 became
- $392,000
- Against $314,000 for a plain world stock index
- Grew a year
- 11.0%
- Against 10.3% for the index
- Worst fall
- −52.1% $4,790
- October 2007 to February 2009; back to even in 63 months
- Costs a year on $10,000
- $10
- 0.10% fee
| Series | Start | Finish |
|---|---|---|
| Simple lean | $10,000 in 1990-10 | $391,970 in 2025-12 |
| Full lean | $10,000 in 1990-10 | $553,929 in 2025-12 |
| Plain world stock index | $10,000 in 1990-10 | $314,164 in 2025-12 |
Best calendar year: 2003, up 36.8%. Worst: 2008, down 38.2%. In 2008 it lost 38.2%; in 2022 it lost 14.4%, against 17.8% for the index.
The worst fall
−52.1% $10,000 fell to $4,790 and took 63 months to get back.
| Series | Worst fall |
|---|---|
| Simple lean | −52.1% |
| Plain world stock index | −52.7% |
It was back above $10,000 in January 2013, 63 months after the October 2007 peak. The plain index fell to $4,730 and took 63 months. Seventy percent of this portfolio is the index, so it falls almost exactly as the index falls.
What it beat, and by how much
In the simulation above, this portfolio grew 11.0% a year against 10.3% for the plain stock index. On the longer 1932–2025 history, built from US data, it grew 12.1% against 11.3%. These are modeled outcomes after assumed costs, not returns the funds earned.
The two histories overlap, and both apply today's assumed fund holdings to older markets. Neither can tell you how large a future advantage would be. Weaker rewards, funds that change what they do, and taxes can each leave the lean behind a cheap index for years. Do not plan around those numbers.
Who it is for
Someone who wants to own most of the market with a modest lean, and would rather hold four funds than nine. If a decade behind the plain index would make you sell the three lean funds, hold portfolio 1 instead. The edge is not worth that trade.
How to hold it
What could go wrong
The lean can trail for longer than you can wait. Cheap stocks trailed expensive ones from 2007 to 2020, and SPMO trailed the S&P 500 in 2019, 2021 and 2023. SPMO is also concentrated, more than half of it in its ten largest holdings, and momentum's worst years arrive suddenly: in 2009 US momentum stocks fell 53% while the market rose. SPMO is a tenth of the money, so a repeat of that year would cost this portfolio about five percent against the index.
The long history
Over 1932 to 2025, with foreign markets mapped to US stocks and stock-style exposures built from US data, $10,000 at the March 1937 peak fell to $4,910 by March 1938, a fall of −51.0%, and took 74 months to get back; all US stocks fell −50.3% and took 52 months. Over that window the portfolio grew 12.1% a year against 11.3% for all US stocks. Nobody earned these returns, and nobody sat through those falls knowing how they would end.