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
    1. Advertisements

  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
    1. Advertisements

  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
    1. Advertisements

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments (here). After that, you can post your question and our members will help you out.
Similar Threads
  1. Walt Bilofsky

    Quicken Starter vs. Deluxe (and Premier)

    Walt Bilofsky, Jan 3, 2009, in forum: Quicken
    Replies:
    4
    Views:
    1,515
    Walt Bilofsky
    Jan 4, 2009
  2. Lexi

    what is a starter pulley

    Lexi, Mar 14, 2007, in forum: Microsoft Accounting
    Replies:
    1
    Views:
    373
  3. Joannes Vermorel

    Porting a query from Commerce Starter Kit to MS RMS?

    Joannes Vermorel, Feb 2, 2007, in forum: Microsoft Point Of Sale
    Replies:
    0
    Views:
    412
    Joannes Vermorel
    Feb 2, 2007
  4. Brent

    starter Kit

    Brent, Jun 20, 2007, in forum: Microsoft Point Of Sale
    Replies:
    1
    Views:
    418
    Glenn Adams [MVP - Retail Mgmt]
    Jun 20, 2007
  5. Old Rookie
    Replies:
    14
    Views:
    3,122
    Dick Watson
    Sep 6, 2010
  6. raylopez99
    Replies:
    16
    Views:
    1,055
    Paul Michael Brown
    Apr 29, 2006
  7. Shhhh

    Building an ETF portfolio...

    Shhhh, Nov 1, 2006, in forum: Financial Planning
    Replies:
    7
    Views:
    575
    Mark Freeland
    Nov 2, 2006
  8. Shhhh

    ETF Portfolio for the long term (ROTH)

    Shhhh, May 31, 2007, in forum: Financial Planning
    Replies:
    1
    Views:
    431
    Ron Peterson
    Jun 4, 2007
Loading...