Jan 03
Portfolio IFA #50
Investors interested in looking at the best investment web site available, check out Mark Hebner’s IFA resource center. Yesterday I took the Risk Capacity Survey and found myself coming in lower than my results of a year ago. This time I locked in on portfolio #45. That seemed a tad conservative, so I decided to run a Quantext Portfolio Planner analysis on the No. 50 portfolio. Click on this link to see a short “movie” of the projected annual return, risk percentage, and portfolio diversification.
As I point out in the “film,” Dimensional Fund Advisors (DFA) recommend index funds that skew a portfolio toward smaller cap stocks and value oriented stocks. Portfolio #50 also includes 40% in fixed income vehicles. This will lower the return, but as you see in the movie, it also lowers risk. Too many investors concentrate on return while downplaying risk. We prefer to examine the ratio between return and risk, and the IFA #50 portfolio has a fine ratio considering the volatile market we are in.
Look for future analysis on other portfolios, such as # 75 and #100 to be presented next week on the Premium side of the blog.
Lowell Herr
Photograph: Expecting a better market.
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January 3rd, 2009 at 12:48 pm
Lowell,
I’m surprised at how much better the diversification factor is on a portfolio that leaves out mid-cap and adds 40% bonds compared to the Vanguard portfolio. Mine was also weighted towrads value. Do you think it is because of the way they construct the individual funds?
Bbo W.
January 3rd, 2009 at 1:05 pm
Bob,
I asked Mark about the absence of mid-cap asset classes. He said those stocks are actually picked up in the DFA small-cap index funds. Of course, some will fall under the large-cap index funds. The fact that the #50 portfolio contains 40% in fixed income instruments helps to pull down the risk percentage and lifts the DM percentage. It also reduces return. Next week I hope to get around to analyzing #75 and #100 portfolio.
Right now I am working on fixing the “movies” so some of the areas were I move the cursor are not off the screen. As I mentioned before, I am in the process of learning how to use Camtasia.
Lowell
January 3rd, 2009 at 3:04 pm
Bob,
When we have brackets {} in an Excel cell, try Control, Shift, Return to activate that cell. It is an array and one cannot do a simple copy and paste. See if that will work.
Lowell
PS I cannot find your question on the blog.