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WHAT’S THE BEST way to manage your investments?
A new book titled Your Perfect Portfolio helps answer this question. I spoke this week with the author, Cullen Roche.
Adam Grossman: The title is Your Perfect Portfolio with an emphasis on your.
Cullen Roche: I was very intentional about saying “your perfect portfolio” because everyone’s different, everyone’s unique. So I wrote this book with the intent of studying lots of different strategies and styles. I go into detail on the history behind the portfolios, why they’re popular, their origin story, then I describe the history of how they’ve performed, and the pros and cons, and who these portfolios might be good and bad for.
The goal is to help people not only understand all the different options out there, but hopefully arrive at a point where they can look at certain styles or strategies and say, “This is the portfolio that’s perfect for me.”
Adam: You start the book with 10 essential principles. One is that beating the market is very hard.
Cullen: The numbers are daunting. Over 20 years, 95% of active investors will underperform a simple index. More importantly, beating the market is literally not a good financial goal, because typically when people are chasing returns, they’re really chasing risk.
Adam: Another of your essential principles is that asset allocation is a temporal conundrum.
Cullen: We talk about diversification across different asset classes, but people don’t often talk about diversification across different time horizons. Especially from a financial planning perspective, I think the difficulty is that it’s really a time problem. When you sit down with somebody and you start mapping out their financial goals, you’re really trying to make sure that people have enough money at certain times in their life. [Dartmouth College finance professor] Ken French said that risk is uncertainty of future consumption, which I think is a perfect way of summarizing it. Asset allocation, to me, is really a time-based problem.
Adam: In the second part of your book, you discuss 20 different portfolio options. Let’s start with the simplest one: 100% bonds. What are the pros and cons?
Cullen: I’m a huge advocate of very, very short-term instruments. I’m somewhat hypercritical of very long-duration bonds. I love the concept of matching assets to liabilities, which is what banks and pension funds do. It’s even more applicable to your average individual investor. So I try to be rigorous about matching assets and liabilities inside of portfolios, but when you get to longer-term Treasurys, they’re not very good liability matching instruments, because of the risk. Bonds can be wildly volatile instruments that, on a risk-adjusted basis, just don’t generate very good returns. Today, a 30-year Treasury bond is yielding 4.5%, and has a duration, or interest rate sensitivity level, of 18%.
If you’ve got a 15-plus year time horizon, the probability of the stock market outperforming bonds is very, very high.
Adam: At the other end of the spectrum, there’s 100% stocks. If someone were 30 or 40 years old, with decades until retirement, should that person go all-in on stocks?
Cullen: You should think of your human capital as sort of a fixed income allocation. The income you’re generating from your job functions a lot like a bond, and so if you’re making $100,000 a year, you can think of that as a $1 million bond that is paying 10%. So someone who’s 20 years old, who’s got 40 years of runway, they actually have a lot more potential to take equity market risk, because they’ve basically got a 40-year bond that is going to be paying them 10% a year. It’s arguably the greatest asset that person has. They’ve got a much higher risk capacity because of that.
Adam: Is age the only consideration in deciding on an allocation?
Cullen: I also like to break it up by portfolio type. For a 50-year-old with a Roth IRA and a taxable account, their Roth has a very different return and risk profile than their taxable account. They’ve got the luxury in the Roth IRA of thinking of that account as maybe a multi-generational account. So that piece of your portfolio might be 100% stocks.
Adam: So any given person might have more than one perfect portfolio?
Cullen: Yes, you’re not just building one sort of homogeneous portfolio. You can pick and choose and have lots of different perfect portfolios of your own.
Adam: Between the extremes of 100% bonds and 100% stocks, the book looks at the traditional 60-40 strategy as well as the Bogleheads three-fund portfolio. What are the pros and cons?
Cullen: The three-fund portfolio is a bond aggregate fund, a domestic stock fund, and a foreign stock fund. It’s just three funds. It can be bought for close to 0% fees. It’s incredibly elegant in its simplicity. That and the 60-40 strategy have stood the test of time. But you can also argue that there are elements in them that are too simple. You don’t have a cash bucket, so if you’re going through 2022, and you were a retiree with the three-fund portfolio, you maybe didn’t feel that comfortable. You probably felt like you wanted a fourth bucket inside of that portfolio at times during that year.
Adam: After deciding on their perfect portfolio, how often should investors revisit their strategy?
Cullen: Only when life changes. For longer-term goals, I don’t think you should tinker too much. You should probably just buy index funds and set it and forget it. Let them serve long-term needs.
Adam: In deciding whether to change strategy, should investors respond to the news?
Cullen: The financial media is incentivized to say almost hyperbolic things all the time, because they’re just trying to get your attention. And that’s counterproductive to a lot of what good, sound portfolio management requires.
Adam: Gold makes an appearance in some of the portfolios in your book. How do you think about gold?
Cullen: Gold is a really tough asset to think about because it doesn’t generate cash flows. There’s no way to really value it. Some people view gold as almost like fiat currency insurance, which I don’t think is irrational. But nobody knows how to value it.
And it’s had this huge run-up. When an asset goes up a whole lot in a very short time period, that creates what I call price compression. Let’s say that gold can be reasonably expected to generate 8% per year, for instance. And let’s say it gains 70%, like it did last year. What happens, in my view, inside of an environment like that, is that you’ve taken a whole bunch of those average 8% years, and you’ve compressed them all down into one year. And what this does is creates much greater sequence of return risk going forward, where the probability is higher of the prices decompressing at some point.
The classic example of price compression was the NASDAQ bubble. If you bought at the very top of the NASDAQ 100 back in 2000, you’ve generated an 8% return per year—a really good return, even if you picked the absolute worst time to buy. The kicker, of course, is that you went through 15 to 20 years of just horrific sequence of return risk inside of that portfolio. So when I see an asset booming like gold, that’s the risk.
Adam: Another portfolio is the endowment model. It’s gotten a lot of discussion recently because of the potential for private funds to enter 401(k) plans. How should individual investors think about the endowment model?
Cullen: This is a really hard one. You almost need your own research team to actually manage a good endowment portfolio. They’re really complex, they’re hard to replicate. And you’ve got a huge fee compounding effect inside a lot of these portfolios. For the vast majority of people, you really don’t need to try to do anything that sophisticated, because there’s other really simple models where you can get low-cost, diversified asset allocation without giving yourself brain damage trying to overcomplicate everything.
Adam: In a paper you wrote in 2022, you introduced a concept you call Defined Duration Investing. Could you talk about how that works?
Cullen: It’s kind of like a bucketing strategy, where I’m bucketing things into very specific time horizons, but I’m doing it in a much more personalized way, where each bucket is serving a specific financial goal and matched to a specific asset.
Then you can allocate it in a much more quantified way, mapping out the expenses and liabilities. For instance, we need one year of emergency funds. That’s going into a T-bill ladder. We have a house down payment for $200K that we need to set aside. That’s going into a three-year instrument. And then you’ve got retirement goals 20 years out. We’re matching that to a 20-year type of instrument. You can start to build a rigorously, temporally structured portfolio utilizing this methodology.
When I wrote the paper three years ago, I was trying to quantify the time horizon of the stock market, in order to quantify the sequence of returns risk in the market.
The thing that I always disliked about bucketing strategies was that they don’t really quantify or communicate the time horizon to people. They use these vague sorts of terms like “short-term” and “long-term.” The question I always run into is determining what long-term means.
Learning to think across very specific time horizons is really useful, because it creates this clarity, matching assets to future liabilities. And I mitigate a lot of the behavioral risk in my portfolio, because I understand exactly what my asset-liability mismatch looks like, and if there is one or not.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
I have posted a positive reply to this article and included a couple of related links. My post has been rejected (I think twice). Can someone/curators (Adam?) help me understand why or suggest a different course of action or inquiry method? Any help appreciated, thanks.
Any post with more than one link is held for moderation. The moderator doesn’t check the queue very often. Try two posts with one link each.
Thanks, Kathy.
Adam,
Thanks for another great article. Cullen Roche has included many of the portfolio construction tenets and guidelines that we are familiar into an interesting book. I look forward to reading it.
Here is a link to portfolios that readers may be interested in reviewing and potentially commenting on.
https://portfoliocharts.com/portfolios/
Here is another link.
https://www.portfoliovisualizer.com/
i meant martin, not william
wm, can you explain “price compression?”
Keep these thought provoking articles coming, very enjoyable interview. At 80 years old I adopted the 75% index S&P 500, 10% on my own, and 15% cash for those rainy days. Working quite well over the past 10 years.
Very good interview. His comments on long term bonds and price compression captured a feeling I’ve had for years but could never quite articulate.
I’ve read many of Cullen’s articles in the past, and his new book might be an interesting read, but I wonder how his book would compare to Jim Dahle’s article titled: 150+ Portfolio’s Better Than Yours.
https://www.whitecoatinvestor.com/150-portfolios-better-than-yours/
Dr. Dahle’s 150+… article post originally ran in January 2014 and had been updated on his White Coat Investor website expanded to 200 portfolios. Per my research Mr. Cullen’s new book was published by Harriman House on 1/6/2026. My guess is both are great reads and worth reading.
Thanks for your question Olin. I will be reading the Your Perfect Portfolio sample.
I always appreciate your comments William! I didn’t know Jim Dahle expanded to 200 portfolios. Thanks for the update!
I have made a purchase request to my local public library to acquire Your Perfect Portfolio. I really enjoyed the the sample. I expect the author’s thinking and writing fits well with the thinking of Bogle and Clements.
Enjoyed this, but TBH seems overly complicated, with no convincing evidence that a ‘perfect portfolio,’ with this added complexity, will beat either a 3-fund or Boglehead portfolio. The part about varying time horizons is intriguing though, and I think that’s a novel way to look at things.
I like the idea of different portfolios for different types of investments accounts. My Roth IRA has a vanguard target date fund 2070 that is 90 percent stocks and 10 percent bonds. I like this portfolio because is simple and it is recommended by Warren Buffett. I am simplifying the allocation of my others accounts.
Another great article, Adam. Cullen Roche’s book has many investing tenets and portfolio mixes we are all familiar with. Seems he has packaged these in a unique way that I’ll be anxious to read.
Here are links to some portfolios … readers may be interested in reviewing (and possibly commenting on),
https://portfoliocharts.com/portfolios/
https://www.portfoliovisualizer.com/.
Thanks, looks interesting. I’m happy with my set-it-and-forget-it portfolio, but will read it anyway.
It is probably a mistake to consider “stocks” as just one thing. Sectors vary wildly in risk and return.
Let’s consider two portfolios. One consists of the Mag 7 stocks, the other has oils, utilities, and bank preferreds. The Mag 7 portfolio may indeed beat the market in some years, as tech stocks go wild, but it is also full of risk and may plummet 50% at any time. The conservative portfolio will almost certainly not beat the market while the market is going up, but it may very well beat the market when there’s a crash – by going down 20% instead of 50%.
For retirees and near-retirees, this difference is important. In order to live off of the Mag 7 portfolio, you have to sell shares. You are running a huge sequence of returns risk, as your portfolio may go down 30-50% just when you need to start selling. On the other hand, the conservative portfolio will not go down as much, and produces substantial income, meaning you may be able to live on the returns without selling anything.
Thanks, Adam. Excellent interview.
All this information is thought provoking and valuable- for the reasonably knowledgeable investor, but where is the simple, really simple strategy for the majority of Americans trying to get from here to retirement and possibly can’t explain the difference between a stock and bond or know what an index fund is?
You know, the people who hold three different S&P index funds and claim they are diversified.
Can those folks do it on their own, even after reading a book?
I think you are asking for a Target Date Fund. Fidelity, Schwab, and Vanguard have a number of low cost options. Vanguard’s LifeStrategy funds are appropriate one-stop funds for retirees.
Don’t you think the “reasonably knowledgeable investors” got that way by reading?
Surely people can learn from reading, but you have to be motivated to read and learn in the first place. I just think there are not many people who will pick up a book titled Your Perfect Portfolio no matter how good it is.
I’d say no, they need professional assistance.
Can those folks do it on their own, even after reading a book?
Short answer, no. Most people need a Grossman.
Now that I’m thinking of it, I need a Grossman, that’s why I’m here.
Fair question.
Roche’s target audience for his book and for his promotional efforts for his book may be the kind of investor who reads HD.
Others may need help or may be well-advised to use a three fund approach or just invest in equities by using a total global ETF or fund.