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The 4 ETF Starter Portfolio

 
 
David S Meyers CFP
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      07-11-2011, 04:54 PM

Seen today on Investopedia:

http://stocks.investopedia.com/stock...Y-DBC0711.aspx

Summary:

SPY, DBC, TIP and EEB
Start with a foundation: SPY = SPDR S&P 500 index
Add raw materials: DBC = Powershares DB Commodity Index Tracking Fund
Mix in fixed-income: TIP = iShares Lehman TIPS Bond ETF
A dash of international flavor: EEB = Claymore/BNY BRIC ETF

My first impressions:

(a) they give no indication whatsoever about what kinds of proportions
make any sense
(b) no small-caps
(c) all developed markets exposure is apparently meant to be through
the multinationals in the S&P500, since EEB is all Brazil, Russia,
India and China
(d) no traditional fixed-income
(e) no real estate
(f) DBC, while interesting, can have messy implications. It's not
really an ETF - it's an LP and you'll get a K-1 from it, moreover, it's
constructed using futures contracts, which have other tax implications
as well.


I don't think I'd call this a "starter" portfolio, but rather, "some
interesting funds to consider".

Perhaps a better - and simpler - two-fund starter portfolio would be a
pair of Vanguard Total World Stock Index ETF (VT) - which has both
large and small-caps, as well as both developed and emerging markets -
paired with their their bond ETF which tracks the Lehman Agg (BND).
(Note that, like the author of that investopedia article, I am also not
mentioning asset allocation)



--
David S. Meyers, CFP
http://www.MeyersMoney.com
disclaimer: discussions in misc.invest.financial-plan are for
educational purposes only and should not be construed as financial
advice. For personal financial advice, please consult directly with a
professional.

 
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dumbstruck
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      07-11-2011, 07:11 PM
On Jul 11, 6:54*am, David S Meyers CFP <(E-Mail Removed)> wrote:
> *SPY, DBC, TIP and EEB
> Start with a foundation: SPY = SPDR S&P 500 index
> Add raw materials: DBC = Powershares DB Commodity Index Tracking Fund
> Mix in fixed-income: TIP = iShares Lehman TIPS Bond ETF
> A dash of international flavor: EEB = Claymore/BNY BRIC ETF

<======= snip ======>
> Perhaps a better - and simpler - two-fund starter portfolio would be a
> pair of Vanguard Total World Stock Index ETF (VT) - which has both
> large and small-caps, as well as both developed and emerging markets -


Looking at past performance, the "better" proposal is nearly
equivalent to the original SPY + TIP without the better performing DBC
+ EEB. In last 5 years the "better" proposal would give nearly dead
money, while EEB about doubled your money:
http://finance.yahoo.com/q/bc?s=SPY&...vt%2Ceeb%2Cdbc

Looking at diversification, note how VT aped SPY in almost every
nuance and wiggle of the curve (yield is barely better also). VT
appears to be cap weighted into a fangless lookalike of the SP500 and
it's world stocks may be lookalikes. I remember the Vanguard US allcap
etf being promoted as a revolution even though it mirrored SP500.
Those probably ARE better than SPY (especially if world markets
decouple), but only by a bit.

 
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David S. Meyers CFP
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      07-14-2011, 06:17 PM
dumbstruck <(E-Mail Removed)> writes:
> On Jul 11, 6:54*am, David S Meyers CFP <(E-Mail Removed)> wrote:
>> *SPY, DBC, TIP and EEB


>> Perhaps a better - and simpler - two-fund starter portfolio would be a
>> pair of Vanguard Total World Stock Index ETF (VT) - which has both
>> large and small-caps, as well as both developed and emerging markets -

>
> Looking at past performance, the "better" proposal is nearly
> equivalent to the original SPY + TIP without the better performing DBC
> + EEB. In last 5 years the "better" proposal would give nearly dead


Past performance - may be deceptive. I'm going to run some
numbers - I want to examine the volatility and the correlations.
And note that selection of time-periods makes a huge difference.
5yrs very much favors EEB. Make it 3yrs and both SPY and TIP
beat EEB and *trounce* DBC.

Since these four funds are a pretty diverse set of asset
classes, though, it should be possible to put together a
portfolio taking advantage of the assets different correlations.
The article, unfortunately, left the hard part - how to put
them together, how to measure the risk of the overall portfolio,
as an exercise for the reader. That makes it interesting,
but certainly not a "starter" portfolio.

That said, I appreciated the article getting me thinking
more about EEB and DBC. I'm not sure I'd fold them into
a portfolio, but they are certainly worth keeping an eye on.

--
David S. Meyers, CFP(R)
http://www.MeyersMoney.com

 
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