Portfolio, TAA Investing

An IVY Buy & Hold Portfolio for the Skeptical & Emotional Investor

One of the keys to successful long term investing is finding a portfolio strategy that works for you, that lets you be at peace and sleep at night. Historical and theoretical returns don’t mean a thing if you have little chance of sticking with a certain strategy. And herein lies the biggest problem with the commonly recommended buy and hold strategies – most investors can’t stick with them over the long term as is shown every year by the Dalbar studies or any studies that look at actual investor returns. For many investors this is where an automatic approach like the IVY Timing model that I discus often here can be the best approach, particularly for retirees. But, I realize that many investors remain skeptical to the IVY timing approach, that even it requires too much effort, and that it will not continue to work in the future. Those are definitely valid concerns. So what option remains?

Income/dividend investing can be a great alternative. Many investors love the concept of living off dividend and bond income as I think the last few years have shown. In theory it sounds great. Pick a portfolio of individual dividend payers that consistently raise dividends year after year, balance that out with a good bond portfolio, and simply live off the income stream. And maybe even enhance it with some option selling for income. I’ve talked about such an approach in the past. Its a big part of my investment approach. But I’ve come to realize that this type of income strategy is also not implementable by most investors. I mean if there is a large set of investors who can’t stick with the simplest buy and hold how are these investors going to implement this much more complex strategy. One potential solution to this problem is to choose a broadly diversified portfolio and tilt the portfolio to income generating sectors of the equity and bond market, enough to provide the income necessary to meet living expenses. The stability of having enough income to meet living expenses allows the investor to ride out swings in the market and stick with their investment strategy. That’s the theory anyway. Thus, my latest little research project that I decided to make public and seek reader input.

This is just a research project at this point, not a recommended portfolio strategy. Also, please chime in with your inputs on ETF or sector recommendations. My goal was to have an overall allocation of 70% stocks and 30% bonds because that’s the allocation that has the highest SWR historically. I also used the IVY 13 portfolio as a basic model which I’ve discussed previously. For stocks I looked for dividend ETFs in particular sectors; large cap, small cap, international, and real estate. For bonds, I looked for duration and credit risk to increase long term returns. For increased income I left out commodity investments and instead turned to TIPS and real estate for inflation protection. So here is my initial take on this IVY buy and hold income portfolio.

IVY B&H Income Version Sep2013


You can see the detailed spreadsheet here. The overall portfolio current yields 4.14% and would have annual fees of 0.36%. Of course, there are a myriad of options to this portfolio. Higher yields can be attained by adding some higher income ETFs from sectors such as MLPs, mortgage REITs, or simply adding a higher bond component like a 60/40 allocation.

That’s the proposal. A IVY based buy and hold income portfolio for the skeptical and emotional investor. Let me know what you think.

Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.

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About paul.novell@gmail.com

10 thoughts on “An IVY Buy & Hold Portfolio for the Skeptical & Emotional Investor

  1. is there a reason you do not consider CEFs ? Most pay monthly and if you are careful you can diversify by chosing several different types..

    1. Dianne, from my experience CEFs are too volatile for most investors. The use of leverage, as most CEFs use, makes them much more volatile than the underlying investments. So I think for a portfolio they can be used to add incremental yield but should not form the core of the overall portfolio allocation. Personally, I use CEFs for 100% for my bond allocation.


  2. Paul

    Some years ago (20) I struggled with, and came to terms with, it really does not matter the sources of the growth, capital gains, interest, or distributions. I also decided that the Breaking Bad solution was too risky. If I had a financial therapist that concept would be a weekly topic!

    I think your research solution involves different disciplines, psychology, sociology, inner demons etc. However, here is an allocation that has worked well for me. If you can get this figured out maybe Mighty Mouse has met his match!

    Good luck and always enjoy your observations.

    Cash CAMXX 5.00%
    iShares Barclays Short Treasury Bond SHV 0.00%
    iShares Barclays Aggregate Bond AGG 8.00%
    iShares Barclays TIPS Bond TIP 7.00%
    iShares iBoxx $ High Yield Corporate Bd HYG 15.00%


    iShares S&P 500 Index IVV 40.00%
    iShares MSCI EAFE Index EFA 6.00%
    iShares S&P MidCap 400 Index IJH 10.00%
    iShares S&P SmallCap 600 Index IJR 5.00%
    iShares MSCI Emerging Markets Index EEM 4.00%


    1. Scott, thanks for sharing your allocation. You hit on the key, finding something that works for you AND sticking to it. In my experience many investors can’t tolerate the drawdowns associated with buy and hold portfolios unless they have something to hang on to during the tough times. Income from the portfolio is one of those things. That’s why I think there is such a hunt for yield when in reality, like you say, the source of growth, really shouldn’t matter. Investors are doing some crazy things in the hunt for yield these days and it probably wont end all that well.

      A question on your allocation. Any particular reason you have such a low allocation to international stocks?


      1. Paul:

        International stock allocation, It’s really a mind issue for me. I have limited international business exposure and even though we are in a global economy I have not taken the time to get comfortable with that market. It’s not like I don’t know it’s there but it’s in the shadows in my mind. So I devote some allocation not based on any strong analytics but because I know its a good policy.

  3. Hi All
    I just retired with a lump sum. As you can imagine I’m devouring all this. Everything I’ve read here is terrific…seems to follow the diversification followed by almost all the pundits. Fear of screwing up of course has my head spinning as I start to invest the lump sum…any advice is welcome thanks


  4. Where do i start in this blog, to find out about your investment strategy?There are many posts! Where would be a good place to start to get an understanding of your strategies and how to implement?

    1. Madeline, I would recommend reading through the posts in the IVY Portfolio category on the blog. Yes, there are many posts but sticking with one category will narrow it down quite a bit. At the beginning you can probably ignore most of the ‘monthly signals’ posts and just stick with the longer ones that describe the strategies in detail.


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