The 4 ETF Starter Portfolio

Discussion in 'Financial Planning' started by David S Meyers CFP, Jul 11, 2011.

  1. Seen today on Investopedia:

    http://stocks.investopedia.com/stoc...TF-Starter-Portfolio-TIP-EEB-SPY-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.
     
    David S Meyers CFP, Jul 11, 2011
    #1
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  2. David S Meyers CFP

    dumbstruck Guest

    On Jul 11, 6:54 am, David S Meyers CFP <> 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&t=5y&l=off&z=l&q=l&c=vt,eeb,dbc

    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.
     
    dumbstruck, Jul 11, 2011
    #2
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  3. dumbstruck <> writes:
    > On Jul 11, 6:54 am, David S Meyers CFP <> 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
     
    David S. Meyers CFP, Jul 14, 2011
    #3
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