Simple Portfolios that Deliver Consistent Decent Returns (arXiv (Cornell University))

Summary

• The paper studies a small universe of liquid US ETFs with monthly, costly trading and no shorting or leverage, and shows that portfolios of as few as three ETFs deliver consistent and decent returns.p.1
• The investable universe consists of 59 US-listed ETFs spanning equities, fixed income and alternatives.p.11
• SPY has an average annual return of 10% and an annual volatility of 19%.p.4
• The 60/40 portfolio has an average annual return of 8% and a volatility of 11%.p.5
• Between 2005 and 2025 the Sharpe ratios for AGG, SPY and 60/40 were 0.23, 0.45 and 0.51.p.5
• Without rebalancing, the 60/40 portfolio drifts to an 86:14 split by 2025.p.6
• SPY's largest drawdown was 55% during the Financial Crisis.p.4

Key insights

1. The bottom 5% of days account for 41% of total losses and the top 5% of days for 33% of total gains of SPY.p.4
2. During the 2008 Financial Crisis AGG fell by 13% and the 60/40 by 36%, compared with 55% for SPY.p.5
3. AGG has an average annual return of 3% and a volatility of 5%.p.5
4. The 2025 volatility of the unrebalanced 60/40 was 11% against 8% for the maintained version.p.6
5. Country ETFs have correlations with SPY between 68% and 84% and average annual returns of 1% to 8% against SPY's 10%.p.13
6. Both crypto ETFs have at one point lost more than 80% of their value from an all time high.p.15
7. Sized by inverse volatility, a SPY and AGG portfolio would be roughly 20% SPY and 80% AGG.p.18