Baby Bear Portfolio (Muscular Portfolios)

Sep 2003 – Sep 2026	Strategy	SPY
Annual return (CAGR)	7.4%	11.3%
Worst drawdown	-27.8%	-55.2%
Sharpe ratio	0.80	0.67
Volatility	9.5%	18.5%
Annual return since publication (Feb 2018)	7.8%	14.1%

Dec 1986 – Sep 2026	Strategy	SPY
Annual return (CAGR)	8.6%	11.2%
Worst drawdown	-27.8%	-55.2%
Sharpe ratio	0.94	0.67
Volatility	9.3%	18.5%
Annual return since publication (Feb 2018)	7.8%	14.1%

The Baby Bear Portfolio is the simplest of the three portfolios in Brian Livingston's 2018 book Muscular Portfolios: half in the US total stock market and half in the US total bond market. Livingston offers it as a starter portfolio for accounts under about $10,000, rebalanced near the end of each year only when the mix has drifted.

The idea#

Livingston's book is mostly about momentum portfolios, but he recognizes that trading several funds every month costs time and money that small accounts cannot justify. Baby Bear is his low-maintenance alternative. Two broad index funds give a stake in thousands of stocks and bonds, and the bond half cushions stock market declines. His stated aim is performance close to the S&P 500 over a full bear and bull market cycle, with smaller drawdowns.

It is also a useful yardstick. If Mama Bear or Papa Bear cannot beat a 50/50 index mix after costs, their extra trading is not paying for itself.

How it works#

Hold 50% in the US total stock market (VTI) and 50% in US aggregate bonds (AGG).
At the close of the last trading day of each year, check the mix. If either half has drifted more than five percentage points from 50%, rebalance both back to 50%; otherwise leave it alone.

Livingston names BND for bonds. AGG tracks the same index and has a few more years of history.

What the backtest shows#

Over the ETF era, from late 2003, Baby Bear returned well under the S&P 500, about 7% a year against 11%, so it fell short of Livingston's aim of matching the index over full cycles. It did cut the worst drawdown roughly in half. Against a 60/40 portfolio it earned slightly less with a smaller drawdown and about the same risk-adjusted return.

Its worst drawdown, about 28%, came in the 2008 financial crisis, from October 2007 to March 2009, and was recovered a year later. That year it lost 14% while the S&P 500 lost 37%. Its weakest recent year was 2022, when stocks and bonds fell together and it lost 16%, nearly as much as the S&P 500.

Since the book came out in early 2018 it has returned about 8% a year, more than Mama Bear and a little less than Papa Bear over the same period. With simulated history the test starts in late 1986 and returns near 9% a year with a much higher risk-adjusted return than the S&P 500. It roughly held its value through 2000–2002, losing under 5% in its worst of those years, while the S&P 500 fell in each of them.

When it struggles#

Stock and bond sell-offs together. In 2022 the bond half fell with the stock half and gave little protection.
Strong bull markets. With half in bonds, it trails the S&P 500 whenever stocks rise quickly.
Rising interest rates. Aggregate bonds lose value when rates climb and can lag for years.

Using it on Tactfolio#

The live strategy above holds VTI and AGG and checks the five-point drift band once a year, as Livingston describes. Copy it to try BND, a different stock and bond split, or a regular yearly rebalance without the band.

Year by year

Year	Strategy	SPY
2026*	6.2%	14.0%
2025	12.2%	17.7%
2024	13.1%	24.9%
2023	15.5%	26.2%
2022	-16.3%	-18.2%
2021	11.9%	28.7%
2020	14.7%	18.3%
2019	19.2%	31.2%
2018	-2.5%	-4.6%
2017	13.1%	21.7%
2016	7.8%	12.0%
2015	0.4%	1.2%
2014	9.3%	13.5%
2013	17.1%	32.3%
2012	10.2%	16.0%
2011	4.2%	1.9%
2010	11.9%	15.1%
2009	15.9%	26.4%
2008	-14.4%	-36.8%
2007	6.0%	5.1%
2006	10.2%	15.8%
2005	4.4%	4.8%
2004	8.3%	10.7%
2003*	-0.1%	10.8%

Year	Strategy	SPY
2026*	6.2%	14.0%
2025	12.2%	17.7%
2024	13.1%	24.9%
2023	15.5%	26.2%
2022	-16.3%	-18.2%
2021	11.9%	28.7%
2020	14.7%	18.3%
2019	19.2%	31.2%
2018	-2.5%	-4.6%
2017	13.1%	21.7%
2016	7.8%	12.0%
2015	0.4%	1.2%
2014	9.3%	13.5%
2013	17.1%	32.3%
2012	10.2%	16.0%
2011	4.2%	1.9%
2010	11.9%	15.1%
2009	15.9%	26.4%
2008	-14.4%	-36.8%
2007	6.0%	5.1%
2006	10.2%	15.8%
2005	4.4%	4.8%
2004	8.3%	10.7%
2003	17.3%	28.2%
2002	-4.6%	-21.6%
2001	-1.4%	-11.8%
2000	0.7%	-9.7%
1999	12.3%	20.4%
1998	17.1%	28.7%
1997	21.1%	33.5%
1996	13.4%	22.5%
1995	27.0%	38.0%
1994	-1.4%	0.4%
1993	10.1%	9.7%
1992	8.2%	7.6%
1991	24.4%	30.3%
1990	1.3%	-3.2%
1989	21.6%	31.5%
1988	12.7%	16.4%
1987	1.5%	5.1%
1986*	-0.1%	-2.3%

* Partial year.

The rules as implemented

This is the exact tree Tactfolio runs, rebalanced yearly with signals and trades at the close. Open it to inspect or copy it.

Sources and caveats

AGG stands in for BND; both track the US aggregate bond index, and AGG has four more years of history.
Livingston rebalances near the end of each calendar year when either fund drifts more than 5% from its target; this version reads that as five percentage points and checks it at the close of the last trading day of each year.

Common questions#

What is the Baby Bear Portfolio?#

It is a 50/50 mix of a US total stock market fund and a US total bond market fund from Brian Livingston's Muscular Portfolios (2018), meant for small accounts that should not trade often.

What ETFs does Baby Bear use?#

Livingston names VTI and BND. This version uses VTI and AGG, which tracks the same bond index with more history.

How often do you rebalance the Baby Bear Portfolio?#

Once a year, near year end, and only if either fund has drifted more than five percentage points from its 50% target.

Is Baby Bear better than Mama Bear or Papa Bear?#

Over their ETF-era tests, which start in 2007, Mama Bear and Papa Bear returned more, around 9–10% a year against about 7%, and had smaller worst drawdowns because momentum moved them out of stocks in 2008. Since 2018, though, Baby Bear has beaten Mama Bear and nearly matched Papa Bear with far less trading.