The Baby Bear Portfolio

The Baby Bear is based on the book Muscular Portfolios (BenBella Books, 2018). The strategy is a clone of a white paper first published in 1996 and repeated in numerous presentations by Jack Bogle, founder of the Vanguard Group.

The Baby Bear is not a Muscular Portfolio. It’s described in the book as a “starter portfolio” for new investors. It’s primarily designed to keep time requirements and trading costs exceptionally low for people who have less than $10,000 to invest. The strategy is designed to achieve performance similar to the S&P 500 over each complete bear-bull market cycle with smaller drawdowns than the index.

The investing menu consists of low-cost exchange-traded funds (ETFs) that track two asset classes. You allocate roughly equal dollar amounts to each ETF.

The table below updates once each market day, but you trade the Baby Bear no more than once a year. The portfolio should be rebalanced back to 50/50 in December or January, if either ETF is more than 5% off its target dollar weight.

Strategy Rules: The Baby Bear Portfolio, unlike a Muscular Portfolio, has no strategy rules. You simply allocate 50% to each of the two ETFs shown above, regardless of market conditions. Rebalance near the end of each calendar year, as described above.

Execution Rule: Buy or sell an ETF only if its bid-ask spread is less than 1.0%. (If greater than 1.0%, a “flash crash” might be occurring. Check an hour later to see whether an orderly market has been restored.) Popular ETFs typically have spreads below 0.2%, but some bond and commodity ETFs have legitimately higher spreads due to trading differences. For information on how to determine spreads and avoid flash crashes, see Newsletter #54.