Executive Summary: This year, the IVA Portfolios delivered solid absolute returns but lagged behind the U.S. market due to a commitment to diversification, which left us underexposed to tech giants. Despite lagging, I remain confident in my strategy of partnering with top managers and maintaining discipline through economic and market cycles. Diversification hasn’t worked recently, but it remains a cornerstone of long-term success. Its time will come, and when it does, patience and discipline will be rewarded.
Rewind the clock to the end of 2022: Stocks and bonds are stuck in bear market territory. 500 Index (VFIAX) fell 18.1% that year and Total Bond Market Index (VBTLX) was off 13.2%. The highest level of inflation in four decades and aggressive Fed action combined to take a bite out of stock and bond prices.
At that time, if I had told you that my Aggressive Portfolio would return 15% in 2023 and do slightly better in 2024, you’d probably have thought I was being incredibly naïve and optimistic.
Not so. My Aggressive Portfolio gained 34% from the end of 2022 through November 2024.
That’s a solid absolute return. Unfortunately, it’s well off the pace set by “the market.”
On the one hand, I’m pleased to have compounded my wealth at better than 30% over the past two years. (My Aggressive Portfolio has earned a double-digit return in six of the past eight calendar years.)
But we live in a world where any investor willing to focus solely on all U.S. stocks can buy the market—via an index mutual fund or ETF—at essentially no cost. I know that many IVA readers are here in pursuit of market-beating returns. Others want to remain invested while taking less-than-market risk, knowing that bear market losses are always harder to recover when your confidence has been questioned.
My recommendations aren’t an idle thought experiment for me. My money is invested in the funds I recommend—I live, breathe and eat my own cooking!
So, I’m not going to simply brush aside the Portfolios’ trailing returns. It’s my money, too.
I’m never one to play ostrich (stick my head in the sand) when the market winds haven’t blown in my favor. For example, I show you the Portfolios’ returns in every Weekly Brief, and I now write a Portfolio Notes section in the Monthly Recap article.
The point is that when returns aren’t living up to expectations, I try to communicate more than usual! Transparency is my objective—and one you won’t find among most who make investment recommendations but never follow up with a scorecard.
So, as I did last year, I’m going to take a deep dive into the IVA Portfolios, laying out the good and bad without sugar coatings.