Model Portfolio Update

The objective of our first set of model portfolios is to deliver higher returns than their respective benchmarks over a one-year holding period, while taking on no more risk. The benchmark for the first portfolio in this group is an aggressive mix of 80% domestic equities, and 20% domestic bonds. Through the end of November, this benchmark had returned 7.5%, while our model portfolio had returned 12.7%. We have also compared our model portfolios to a set of global benchmarks. In this case, the global benchmark is a mix of 80% global equities, and 20% global bonds. Through the end of last month, it had returned 11.0%.

The benchmark for the third portfolio in this group is a conservative mix of 20% domestic equities and 80% domestic bonds. Through the end of last month, it had returned 4.4%, while our model portfolio had returned 7.2% and the global benchmark 7.5%.

The objective of our second set of model portfolios is to deliver less risk than their respective benchmarks, while delivering at least as much return over a one-year holding period. The benchmark for the first portfolio in this group is an aggressive mix of 80% domestic equities, and 20% domestic bonds. Through the end of last month, this benchmark had returned 7.5%, while our model portfolio had returned 12.3%. We have also compared our model portfolios to a set of global benchmarks. In this case, the global benchmark is a mix of 80% global equities, and 20% global bonds. Through the end of last month, it had returned 11.0%.

The benchmark for the second portfolio in this group is a mix of 60% domestic equities and 40% domestic bonds. Through the end of last month, it had returned 6.5%, while our model portfolio had returned 9.2%, and the global benchmark had returned 9.8%. The benchmark for the third portfolio in this group is a conservative mix of 20% domestic equities and 80% domestic bonds. Through the end of last month, it had returned 4.4%, while our model portfolio had returned 7.6% and the global benchmark 7.5%.

The objective of our third set of model portfolios is not to outperform a benchmark index over a one year holding period, but rather to maximize the probability of achieving a minimum level of compound annual real return over a twenty-year period while taking on as little risk as possible. Through last month, our 7% target real return portfolio had returned, in nominal terms, 13.6% year-to-date, our 5% target real return portfolio had returned, in nominal terms, 12.2%, and our 3% target real return portfolio had returned, in nominal terms, 9.0%.

Our fourth set of model portfolios are also target real return portfolios; however, they include the possibility of investing in a hedge fund index, in addition to the asset classes used in our other portfolios. For more information on these portfolios, please see our January, 2004 issue. Through last month, our 7% target real return HF portfolio had returned, in nominal terms, 12.4% year-to-date, our 5% target real return HF portfolio had returned, in nominal terms, 10.0%, and our 3% target real return HF portfolio had returned, in nominal terms, 9.5%.

To review all of the portfolios please click here: Portfolios

| This Month's Issue: Key Points | This Month's Letter to the Editor: Weighting of Commodities in Model Portfolios | Global Asset Class Returns | Equity Market Valuation Update | DFA versus Vanguard: The All-Stars Compared | Model Portfolio Update | Product and Strategy Notes: Gold ETF, ETF Tracking Error, Hussman Funds and Economic Indicators Update |