Armstrong Ideal Index desc

Apr 13, 2025 | 401Ks

Armstrong Ideal Index: Comprehensive Overview

1. Background and Philosophy

The Armstrong Ideal Index was created by Frank Armstrong, a renowned financial advisor and author of The Informed Investor. Armstrong advocates for a passive, low-cost investing approach, emphasizing diversification across asset classes and reliance on index funds to eliminate manager risk. His philosophy centers on:

  • Market efficiency: Avoids active management in favor of broad market indices.
  • Small-cap and value tilts: Historically, these segments have outperformed large-cap and growth stocks over the long term.
  • Simplicity: Designed as a “lazy portfolio” with minimal rebalancing.

2. Asset Allocation Analysis

The portfolio is allocated as follows:

  • U.S. Equities (31%):
    • VISVX (9.25% Small Cap Value)
    • VIVAX (9.25% Large Cap Value)
    • VISGX (6.25% Small Cap Growth)
    • VFINX (6.25% S&P 500)
    Pros: Diversified across market caps with a value tilt. Cons: Overweight in small caps may increase volatility.
  • International Equities (31%):
    • VGTSX (Total International)
    Pros: Broad exposure to developed and emerging markets. Cons: No explicit emerging markets overweight.
  • REITs (8%):Pros: Inflation hedge and diversification. Cons: Potentially underweighted.
  • Bonds (30%):Pros: Reduces overall portfolio risk. Cons: Lower yield potential.

Risk Level: Aggressive (70% equities), suitable for long-term investors with higher risk tolerance.

3. Practical Application for Retirement Accounts

For 401(k) Plans:

  • Step 1: Identify equivalent funds in your 401(k) by matching the asset class and index (e.g., S&P 500, small-cap value).
  • Step 2: If exact funds (e.g., VISVX) are unavailable, use:
    • Broader U.S. equity funds for small-cap/value allocations.
    • Total international funds for VGTSX.
    • Short-term bond funds for VBISX.
  • Step 3: If REITs (VGSIX) are unavailable, allocate to equities or a real estate sector fund.

For IRAs:

Investors can directly replicate the portfolio using the suggested ETFs (e.g., SCZ, SPY, BND) for greater flexibility and lower costs.

Key Takeaway: The Armstrong Ideal Index is a low-maintenance, diversified portfolio ideal for investors seeking long-term growth with a tilt toward small-cap and value stocks. Its simplicity makes it adaptable to most retirement accounts.