ITA Wealth Management

Below is a semi-conservative portfolio where the building blocks are a wide variety of index funds from Dimensional Fund Advisors.  These are known as DFA funds and they are only available through approved financial advisors.  One such firm is Index Funds Advisors (IFA) and if you have never been to their site, you are in for an investing treat as it is the best investment site I have ever seen on the Internet.

The analysis you are looking at to the left is portfolio #65 from IFA. Looking at Portfolio Stats or the data with the blue background, you will see the projected return is 8.14% while the annualized Standard Deviation or risk factor is 14.36%.  This gives us a Return/Risk ratio of 0.57. We strive to come up with a Return/Risk ratio of 0.80 or higher.  This is extremely difficult to do in this market as it is so volatile.

The last four funds in the list are bond funds.  The four bond funds make up 25% of the total portfolio.  Note that the 6.3% is really rounded up from 6.25%.

Under Historical Data, or the information with the yellow background, we see this portfolio lost only 11.9% (annually) of its value .  Most of us would be quite pleased with a portfolio that reduced losses to this level while the S&P 500 was down 15.7% (annually) over the same period.  The Passive Portfolio, monitored over on Premium, performed about as well as this semi-conservative portfolio, and did it with no bond funds.

Another important piece of the portfolio puzzle is something called Diversification Metric (DM).  In this portfolio, the value is 46% or a very acceptable diversification percentage.  I prefer to see that number over 40% and over on Premium Content we have portfolios that do a little better and some that are not as high as this sample presented this morning.

The software used to analyze this portfolio is known as Quantext Portfolio Planner (QPP) and it is available to interested investors.  Examine the projected return for each of the index funds.  If one wishes to take on a bit more risk, altering the percentages or applying some Tactical Asset Allocation to the portfolio is a way to increase the probability of obtaining a higher return.  Our spreadsheet program available on Premium is set up to aid the investor in making these decisions.

Lowell Herr

Photograph: Santorini Island, Greece

Premium subscription available for $6.99.  Submit tickers and percentages for individual portfolio analysis.  Portfolio construction and management available on the Premium Content side of this blog.