Here’s another popular portfolio, this one from Harry Browne. He felt you wanted a portfolio that would do well in prosperity (stocks), deflation (long treasuries), inflation (gold), and “tight money or recession” (cash). There are lots of variations.
In this ETF portfolio, we will view Social Security as a bond, allowing us to allocate a higher percentage to stocks. In this version, some 47% of your assets are in a combination of Domestic and Foreign stocks. As can be seen, with 38% bonds and 15% REITs and Utilities, the portfolio is still reasonably conservative. I have slanted it in favor of generating decent current income, while allowing potential for growth.
Popularized by investment author and financial advisor Bill Schultheis in “The Coffeehouse Investor”, this version of slice and dice is heavy on the REITs, is light on international stocks, and lacks diversity on the fixed income side. But it does weigh in at under 10 basis points. You want someone to tell you what to do? Bill will do it. Follow his instructions and you’ll be fine.
One of the first of the “slice and dice” type portfolios, this portfolio tried to capture some benefit from the fact that sometimes growth stocks outperform value stocks, and vice versa. Its detractors argued that you were just recreating TSM at twice the cost (10 basis points versus 5). Another variation is to use Total Stock Market instead of Growth Index and Small Cap Index Fund instead of Small Growth Index. This allowed you to “tilt” to the Fama-French factors, while keeping costs down a bit (7.5 basis points). Obviously, you could mix this in with some international stock funds and bond funds until you get to something you like.
The bond market is large and complex, so it’s important to know what’s in your portfolio. The simple way to diversify bond part of the portfolio is to split is on two – US Treasures and Corporate bonds.
US Treasuries ETFs invest primarily in U.S. Treasury Notes of various lengths. Treasuries are among the most popular and safest bonds available, since the likelihood of the U.S. government defaulting on its debt is extraordinarily unlikely. TLT is one of the most popular options for investors seeking to establish exposure to long-dated Treasuries, is efficient from a cost perspective, offers exposure to hundreds of individual securities, and delivers impressive liquidity to those looking to execute a trade quickly.
Corporate Bong ETFs offer exposure to high-quality corporate bonds. Investment grade bonds are defined as having a credit rating of BBB or higher, which means they are at a very low risk of default. LQD is the most popular option for investors looking to gain exposure to investment grade corporate bonds, making it a useful tool for those looking to access a corner of the bond market that should be a core component of any long-term, buy-and-hold portfolio.
This portfolio is perfectly balanced between stock and bonds in search of stable growth. This highly researched, global diversification across six asset classes helps mitigate risk in most market environments. Due to its balanced weighting, this portfolio will generate notable amounts of annual revenue from dividends. This portfolio will experience average ups and downs with market movements. It is ideal for investors in their fifties or those with a significant time horizon who prefer stable portfolio growth.
This portfolio has a highly aggressive emphasis on stocks in search of maximum growth and inflation protection. This highly researched, global diversification across six asset classes helps mitigate risk in most market environments. Due to its heavy stock emphasis, this portfolio will generate the smallest amount of annual revenue from dividends. This portfolio will experience the largest ups and downs with market movements. It is ideal for investors in their teens or twenties or those with a long time horizon who are comfortable withstanding large market swings in search of growth.
Value Investors seek mispricing between the market price of a company today and its believed intrinsic value. This portfolio is for investors who believe that market inefficiency and company mispricing is temporary. They believe such companies will reach their real value in the long-term. Being more mature and well-defined companies, value stocks have traditionally provided higher dividends and income than growth stocks.
When you invest in anything, be it exchange traded funds (ETFs), mutual funds, or individual stocks and bonds, there’s always a bit of a gamble involved. (Even when you decide not to invest, by, say, keeping all your money in cash, stuffed under the proverbial mattress, you’re gambling that inflation won’t eat it away or a house fire won’t consume it.) Thus, the best investment advice ever given probably comes from Kenny Rogers:
You got to know when to hold ’em, know when to fold ’em
Know when to walk away and know when to run.