How does one select or create the “correct” portfolio? Here are two suggestions and these are particularly important for beginning investors.
1) Go to http://www.ifa.com and take the Risk Capacity Survey. This survey will recommend one of twenty asset allocation plans. Most investors will find they land somewhere between portfolio #30 (on the conservative side) to portfolio #70 (somewhat to the aggressive side). Few will find themselves either at the extreme conservative side with portfolio #5, or over on the most aggressive side at portfolio #100.
2) A second source is to go to AssetBuilder and you will find the link under Blogrolls on the right-hand edge of this blog. Check out the different portfolios and see how the asset allocation plans fit your ability to handle risk.
Over the next few weeks sample portfolios will be posted here, but most of the detailed work will be presented over on Premium Content.
Photograph: Part of the old section of Southampton, England
Premium subscription available for $6.99 per month. A 14-day free trial is currently available.
Due to hacker problems, readers attempting to subscribe to the 14-Day free trial of Premium Content may have been thwarted. Therefore, I am going to extend this offer for a few more days.
Investors interested in a conservative approach to investing will find the follow portfolio of interest. This conservative portfolio is made up of only four investments. These are: Long-Term Bonds, Treasury Bonds, Gold, and High Dividened Producing Stocks. The tickers I am using are TLT, SHY, GLD, and DVY.
While the return for this portfolio is projected to be modest, the risk, as one might expect, is also projected to be very low. The Diversification Metric is high and the Portfolio Autocorrelation (PA) is negative. Most of our portfolios do not produce negative PA values. For a definition of PA, do a search for the term on this blog.
For a detailed QPP analysis of this portfolio, check out the Premium Content side of this blog. I will be tweaking this four-factor portfolio so as to increase the projected annual return while keeping the risk low.
Lowell Herr
Photograph: Image captured in Bergen, Norway
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