Paul Farrell’s The Second Grader’s Starter Portfolio: Backtesting, Allocations, and Performance Analysis
The Second Grader’s Starter Portfolio by Paul Farrell is a passive index portfolio that aims to diversify investments across stocks and bonds.
The Second Grader’s Starter Portfolio strategy can be implemented with only 3 ETFs. You do not need to pick individual stocks and bonds.
According to our backtests over the past 16 years, The Second Grader’s Starter Portfolio has the following performance metrics:
- Compound annual return (CAR): 6.68%;
- Standard deviation: 20.04%;
- Maximum drawdown (MDD): -52.00%;
- Sharpe ratio (with a risk-free rate of 3%): 0.18;
- CAR/MDD ratio: 0.13.
We’d also like to mention that we have plenty of similar investment strategies on our major landing page.
Who Is Paul Farrell
Paul has been in the investment business for over 30 years as a research analyst, portfolio manager and fund co-founder. Mr. Farrell is the Founder and Managing Member of Mayborn Partners, LLC, a family office based in Westport, CT.
He also serves on the LPAC for Next Frontier Capital, a Bozeman, an MT-based VC firm. Previously, he co-founded Bronson Point Management, an equity long-short hedge fund firm based in Fairfield, CT.
Mr. Farrell was previously a managing director and portfolio manager at Pequot Capital and prior to that, at Goldman Sachs. Earlier in his career, Mr. Farrell also worked at GEICO, WR Capital and Fred Alger Management.
What Is The Second Grader’s Starter Portfolio
The Second Grader’s Starter Portfolio consists of the following asset classes with their respective total weights:
| Asset class | Weight in the portfolio |
| Total U.S. Stock Market | 60.00% |
| Total International Stock Market | 30.00% |
| Total U.S. Bond Market | 10.00% |
Stocks In The Second Grader’s Starter Portfolio
Stocks are used as high-return securities that increase portfolio returns, but stocks are more risky and volatile than bonds. However, over time, you get paid for taking that extra risk: stocks have outperformed bonds by a wide margin over the last century. But also keep in mind that bonds can play a “safe haven” role in your portfolio when the markets are turbulent.
Related reading: Warren Buffett ETF Portfolio (90/10) – Performance And Returns
The Second Grader’s Starter Portfolio includes the following types of stocks:
- Total U.S. Stock Market – US large-cap growth and value stocks that virtually replicate the benchmark S&P 500 stock index;
- Total International Stock Market – international stocks allow you to increase diversification by reducing the overall correlation of the portfolio. International stocks are located on other continents (Europe, Asia, etc) and have low correlation with US stocks.
For stocks, we have picked these ETFs, which are well diversified, have high liquidity and a long performance history:
| Portfolio Sector | ETF Name | ETF Ticker |
| Total U.S. Stock Market | SPDR S&P 500 ETF Trust | SPY |
| Total International Stock Market | iShares MSCI EAFE ETF | EFA |