Jul 02
“Big Six” Asset Classes
When you see a reference to the “Big Six,” it refers to the core U.S. equity holdings of a portfolio. In any given cell, the ticker on the left is the iShare from Barclay, while the right-hand ticker is the ETF from Vanguard. In most cases I will invest using the Vanguard ETF as they tend to have lower expense ratios. Reducing costs for ETFs works right to the bottom line. Approximately 50% to 60% of the AA-Mosaic Portfolio will be allocated to these six asset classes. This will change depending on market conditions. Premium readers will see these changes in action on that side of ITA Wealth Management. These are the first of the ten to twelve asset classes that will make up our portfolio.
Remember the Fama-French study. It is important to hold investments in the small-value asset class or ETFs, IJS or VBR.
Big Six
| Size | Value | Growth |
|---|---|---|
| Large-Cap | IVE or VTV | IVW or VUG |
| Mid-Cap | IJJ or VOE | IJK or VOT |
| Small-Cap | IJS or VBR | IJT or VBK |
In a later post we will discuss the percentage to allocate to each of the six asset classes. We now have new software tools to help us with our asset allocation percentages.
For investors not interested in breaking up the U.S. equities market into these six asset classes, it is fine to select one ETF, VTI, to represent the “Big Six.” The “Big Six” ETFs are highly correlated with VTI.
One can set up a diversified portfolio using equal percentages in VTI, EFA, VNQ, AGG, and DBC. These ETFs cover domestic equities, international stocks, REITs, bonds, and commodities respectively.
Lowell Herr
Photograph: Image captured by Ivan Hodiny – Palace of the Elephants Phuket, Thailand
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