Overview of the Scott Burns Margaritaville Portfolio
Background and Philosophy
The Margaritaville Portfolio was created in 2004 by Scott Burns, a well-known financial columnist for the Dallas Morning News. Burns is a proponent of simple, low-cost, and diversified investment strategies. The portfolio’s name is inspired by the classic margarita cocktail, which consists of equal parts tequila, triple sec, and lime juice—mirroring the portfolio’s equal allocation to three core asset classes. Burns designed this lazy portfolio to provide broad diversification with minimal maintenance, making it ideal for investors seeking a hands-off approach.
Asset Allocation and Holdings
The Margaritaville Portfolio consists of three equally weighted assets:
- VTI (Vanguard Total Stock Market ETF, 33.33%) – Provides exposure to the entire U.S. equity market.
- VXUS (Vanguard Total International Stock ETF, 33.33%) – Covers developed and emerging international markets.
- TIP (iShares TIPS Bond ETF, 33.34%) – Offers inflation-protected U.S. Treasury bonds.
Diversification and Risk Level
This portfolio achieves strong diversification across:
- Geographic regions (U.S. and international equities)
- Asset classes (stocks and bonds)
- Inflation protection (via TIPS)
The risk level is moderate, balancing growth potential (equities) with stability (bonds). However, the 33% allocation to international stocks may introduce currency and geopolitical risks.
Pros and Cons
Pros:
- Simple and easy to maintain.
- Low-cost (uses index ETFs).
- Inflation protection from TIPS.
- Broad global diversification.
Cons:
- No exposure to commodities or real estate.
- Higher volatility than bond-heavy portfolios.
- International equities may underperform at times.
Application for Retirement Accounts (401(k) and IRA)
Investors can implement the Margaritaville Portfolio in their 401(k) or IRA accounts by selecting equivalent funds:
- VTI (U.S. Total Stock Market) → Look for an S&P 500 or total U.S. stock market index fund.
- VXUS (International Stocks) → Choose a developed/emerging markets international index fund.
- TIP (TIPS Bonds) → Select an inflation-protected bond fund. If unavailable, use a general bond fund.
Note: If a 401(k) lacks exact matches, investors can approximate allocations by using broader categories:
- No TIPS fund? Allocate to a general bond fund.
- No international fund? Increase U.S. stock exposure.
- No commodities? Allocate to stocks instead.
Rule of Thumb:
- For stock funds, prioritize index funds, especially low-cost index funds
- For bond funds, prioritize core bond funds or high-quality actively managed total return bond funds (if available).
This flexibility ensures the portfolio remains viable even with limited 401(k) fund choices.