Thursday , 17 August 2017


10 Index ETFs for Building an Ideal Retirement Oriented Portfolio

So says Lowell Herr (http://itawealthmanagement.com) in an article* posted on SeekingAlpha.com.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Herr goes on to say:

Several goals were established before building the following portfolio.:

  1. The 6 to 12 month projected return must exceed that expected for the S&P 500 over the same period.
  2. The projected return/uncertainty ratio should be greater than 0.60.
  3. The projected standard deviation (uncertainty) must be less than 15%.
  4. Portfolio diversification is expected to be greater than 40% as measured by the Diversification Metric (DM).

The following portfolio meets all the above goals. As a reference, the proposed or expected return for the S&P 500 was set to 7.0% for the next year. The following portfolio shows a projected return of nearly 1.0% point higher. The Return/Uncertainty ratio is 0.68 and the DM is a very high 50%. Take note of the average annual return over the last three years. Granted, the market was only about three months away from the low of the last bear market and we have had a nice recovery. All that is reflected in the performance results of this asset allocation plan.

The following table shows the correlation matrix for the retirement portfolio. The high percentages selected for IEF and TLT create the diversification required. These two ETFs are largely responsible for the Diversification Metric moving to 50%. They also help drive the Portfolio Autocorrelation into negative territory.

Disclaimer: Always be skeptical of results where data extrapolation is involved. The portfolio is sufficiently conservative that an investor is not likely to experience severe damage when the next bear market strikes. As a balance, there are sufficient equities to counter inflation. There is a global component (VEU and VWO), although it is not over done. Domestic and international REITs (VNQ and RWX) bolster portfolio yield. There is a lot riding on the TLT ETF as it controls nearly one-third of the portfolio.

*http://seekingalpha.com/article/305624-10-etfs-for-building-a-better-retirement-portfolio?source=feed

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