Burns Margarita
Scott Burns Margarita(ville) Portfolio
Where it stands today
Our calculation, 1926-07 – 2026-09
Growth of $10,000
Where it came from
Scott Burns created the original Couch Potato Portfolio in 1991 (50% S&P 500 index fund, 50% bond index fund). Later, at the Dallas Morning News and then at AssetBuilder (which he co-founded in 2006), he published a family of 'lazy' portfolios with more asset classes. The three-fund member is called the Margarita Portfolio in Burns's own writing; the name 'Margaritaville' appears in the list of his portfolios compiled by secondary sites. Both names point to the same idea: equal thirds in US stocks, international stocks and inflation-protected bonds.
A secondary site (Optimized Portfolio) says Burns proposed it in 2004 according to an archived AssetBuilder.com article; a 2007 blog post (My Money Blog, dated 19 January 2007) lists it alongside the Four Square portfolio, which shows that it existed by early 2007. I could not open the 2004 article myself.
Burns returned to the portfolio in the Dallas Morning News column 'Meet the Margarita Portfolio' (27/28 January 2017), where he described it as an experiment with equal parts US total-market stocks, international stocks and inflation-protected Treasuries, naming it after the traditional recipe with equal-ish parts of its ingredients. On 29 July 2018 his own site, scottburns.com, ran a simulation comparing the Margarita with the Couch Potato: the Couch Potato ended with more money in four of six periods, so Burns warns that the three-fund version may not be an improvement on the basic Couch Potato and notes that US stocks looked expensive against foreign stocks at that time.
In January 2019 he reported on the 2018 results of his portfolios (I could not read the column; a search summary says the Margarita lost 7.13% in 2018 and gained 11.21% in 2007).
What is in it
| Total US stock market | 33.3% | one third; some sites show 33%, others 34% |
| Total international stock market | 33.3% | one third |
| US inflation-protected securities (TIPS) | 33.3% | one third; the 2018 article says 'US fixed income', the 2007 and AssetBuilder-era lists say TIPS |
How we model it
| Inflation-protected bonds (TIPS) | 33.3% |
| US large companies (S&P 500) | 33.3% |
| Developed markets outside the US | 33.3% |
For a euro investor
How to build it with European funds
| Part | Share | Example funds (ISIN) |
|---|---|---|
| Inflation-protected bonds (TIPS) | 33.3% | iShares USD TIPS UCITS ETF USD (Acc) IE00B1FZSC47 |
| US large companies (S&P 500) | 33.3% | iShares Core S&P 500 UCITS ETF USD (Acc) IE00B5BMR087Vanguard S&P 500 UCITS ETF (USD) Distributing IE00B3XXRP09 |
| Developed markets outside the US (closest match) | 33.3% | iShares Core MSCI Europe UCITS ETF EUR (Acc) IE00B4K48X80iShares Core MSCI Japan IMI UCITS ETF IE00B4L5YX21 |
The idea
Same lazy idea as the Couch Potato but with foreign diversification and inflation protection: one third each in US stocks, foreign stocks and TIPS. Burns argues for diversification and easy management, while admitting that the evidence that it beats the basic Couch Potato is mixed.
How people buy it
Vanguard Total Stock Market (VTI), Vanguard Total International (VXUS, or VEU/VGTSX earlier) and TIPS (Vanguard VIPSX, iShares TIP, or Schwab SCHP).
Rebalancing as published
Not discussed in the 2018 article. The Couch Potato approach is to keep the thirds equal and rebalance periodically.
Variants
- Original two-fund Couch Potato: 50% US stocks, 50% bonds (m_couch).
- Burns's later family: Four Square (25% each US stock, international, TIPS, non-US bonds), Five-Fold, Six Ways from Sunday, Seven Value, Nine Emerging, Ten-Speed (see m_couch).
- Bogleheads three-fund (33/34/33 of TIPS, total stock, total international) is sometimes called the same thing (m_threefund).
Criticism
- Burns himself says the evidence that it improves on the basic Couch Potato is mixed.
- One third in TIPS is a bond-heavy position whose real yield was low or negative for years after 2008.
- A 2023 backtest in the Optimized Portfolio review says its return was lower than the S&P 500, with lower volatility and similar risk-adjusted return.
Through the eras
| Era | Dates | Total | Per year | Worst drop | S&P 500 |
|---|---|---|---|---|---|
| Roaring Twenties boom | 1926-07 – 1929-08 | +97.7 % | +24.0 % | −3.9 % | +153.7 % |
| Wall Street crash and Great Contraction | 1929-09 – 1932-07 | −60.1 % | −27.0 % | −66.3 % | −78.2 % |
| New Deal recovery | 1932-08 – 1937-02 | +163.6 % | +23.5 % | −19.1 % | +268.7 % |
| Recession within the Depression | 1937-03 – 1938-03 | −33.7 % | −31.6 % | −33.7 % | −49.5 % |
| Rearmament and World War II | 1938-04 – 1945-09 | +128.8 % | +11.7 % | −18.9 % | +205.8 % |
| Postwar expansion | 1945-10 – 1965-12 | +599.1 % | +10.1 % | −16.6 % | +1212.9 % |
| Golden age of the 1950s | 1950-01 – 1959-12 | +236.4 % | +12.9 % | −9.6 % | +438.8 % |
| Go-go years and nifty-fifty | 1966-01 – 1968-12 | +24.6 % | +7.6 % | −10.8 % | +34.0 % |
| The Great Inflation (stagflation) | 1969-01 – 1982-07 | +98.7 % | +5.2 % | −32.1 % | +84.6 % |
| 1973-74 oil shock and bear market | 1973-01 – 1974-12 | −26.9 % | −14.5 % | −32.1 % | −41.7 % |
| Second oil shock and the Volcker disinflation | 1979-01 – 1982-08 | +48.9 % | +11.5 % | −10.8 % | +59.2 % |
| Great bull market in stocks and bonds | 1982-08 – 1999-12 | +1006.3 % | +14.8 % | −21.6 % | +2060.4 % |
| Black Monday | 1987-08 – 1987-12 | −15.3 % | — | −21.6 % | −21.8 % |
| Savings-and-loan crisis and 1990 recession | 1990-07 – 1991-03 | +3.2 % | — | −13.1 % | +7.4 % |
| 1994 bond market massacre | 1994-02 – 1994-12 | −3.9 % | — | −5.4 % | −3.2 % |
| Asian and Russian financial crises | 1997-07 – 1998-10 | +14.9 % | +11.0 % | −8.6 % | +22.4 % |
| Dot-com bubble and crash | 2000-03 – 2002-10 | −20.9 % | −8.4 % | −25.7 % | −37.2 % |
| Recovery and housing boom | 2002-11 – 2007-09 | +100.9 % | +15.2 % | −3.8 % | +97.0 % |
| Global financial crisis | 2007-10 – 2009-03 | −31.1 % | −22.0 % | −37.3 % | −44.7 % |
| The decade after the crisis | 2009-04 – 2019-12 | +184.5 % | +10.2 % | −11.7 % | +411.2 % |
| Fourth-quarter 2018 sell-off | 2018-09 – 2018-12 | −9.6 % | — | −9.6 % | −14.4 % |
| Covid crash and stimulus boom | 2020-02 – 2021-12 | +31.2 % | +15.2 % | −14.0 % | +53.6 % |
| Inflation shock and rate hikes | 2022-01 – 2022-12 | −15.7 % | −15.7 % | −22.0 % | −19.9 % |
Calendar years
Any N-year period
| Any N-year period | Worst | 10 % worse than | Median | 10 % better than | Best |
|---|---|---|---|---|---|
| 1 y (1192) | −46.7 % | −7.4 % | +10.5 % | +25.2 % | +90.0 % |
| 3 y (1168) | −28.2 % | −1.0 % | +9.1 % | +16.6 % | +30.9 % |
| 5 y (1144) | −10.6 % | +2.4 % | +8.5 % | +14.5 % | +24.8 % |
| 10 y (1084) | −1.1 % | +4.6 % | +8.3 % | +13.1 % | +16.2 % |
| 15 y (1024) | +1.7 % | +5.7 % | +8.4 % | +12.8 % | +15.4 % |
| 20 y (964) | +3.0 % | +6.3 % | +8.9 % | +11.9 % | +14.3 % |
| 30 y (844) | +6.5 % | +7.6 % | +9.2 % | +10.4 % | +11.8 % |
How it behaved in history
- 2000-2002 and 2008. In Burns's withdrawal simulation, which includes these declines, the portfolio never ended below its starting balance in any of the six periods tested. scottburns.com
- early 2000s. A backtest by a third party says the portfolio strongly beat the S&P 500 in the early 2000s, which he attributes to foreign stocks. www.optimizedportfolio.com
- 2018. A search summary of the Dallas Morning News column of 13 January 2019 gives -7.13% for the Margarita in 2018; I could not read the column. www.dallasnews.com
Published results (by others)
- Burns's simulation (start $100,000, inflation-adjusted withdrawals from year 2, Portfolio Visualizer data): Margarita ended with less than Couch Potato in four of six periods (10, 5, 20 and 25 years) and more in two (15 and 3 years); all periods ended above the starting $100,000, even those that span 2000-2002 and 2008 (periods ending 31 December 2017 (2018 balance to May)): 25 yr $302,826 vs $334,437; 20 yr $155,984 vs $159,320; 15 yr $203,793 vs $176,320; 10 yr $105,289 vs $128,487; 5 yr $123,597 vs $128,797; 3 yr $108,885 vs $107,802 (Margarita vs Couch Potato) scottburns.com
- Backtest 1997 to November 2023: lower return than the S&P 500 with lower volatility and near-identical Sharpe/Sortino; strongly ahead in the early 2000s because of the large international share (1997-2023): qualitative (chart only) www.optimizedportfolio.com
What we could not verify
- Burns's own 2004 and 2007 columns were not opened; the 2004 date comes from one secondary site that cites an archived AssetBuilder article.
- Whether the third part is TIPS in Burns's current version: his 2018 article says 'US fixed income'; 2007 and 2017 sources say inflation-protected.
- The 33/33/34 vs 34/33/33 order differs between sources.
- The 2017 Dallas Morning News column and the 2019 column could not be opened (error pages); the 2007 and 2018 return figures come from a search summary.
- The name: Burns writes 'Margarita'; 'Margaritaville' is used by secondary lists.
Sources
- scottburns.com
https://scottburns.com/margarita-portfolio/ - www.dallasnews.com
https://www.dallasnews.com/business/personal-finance/2017/01/28/meet-the-margarita-portfolio/ - www.dallasnews.com
https://www.dallasnews.com/business/personal-finance/2019/01/13/couch-potato-portfolio-the-most-diverse-and-complicated-investment-strategies-got-whacked-in-2018/ - mymoneyblog.com
https://mymoneyblog.com/model-portfolio-1-couch-potato-portfolio.html - www.optimizedportfolio.com
https://www.optimizedportfolio.com/margarita-portfolio/ - en.wikipedia.org
https://en.wikipedia.org/wiki/Scott_Burns_(newspaper_columnist)
Calculated on historical data. Past results do not predict the future. Models before the 1990s use stand-ins for classes that had no index yet; fees, taxes and fund costs are not included. This is mathematics, not an investment recommendation.