ITA Wealth Management » Asset Allocation

Portfolio Construction

Physlab — Fri, 15 Feb 2008 01:00:59 +0000

Before I progress very far down the path of why Asset Allocation and broad portfolio diversification will lead to better than market performance while reducing risk, note that such a portfolio was started several weeks ago and that effort will continue. A spreadsheet laying out all the transactions will be available.

Research results will be presented and discussed so do come back to read the basis for an investment approach I choose to call, Mosaic Investing.

Physlab

Photograph: Ferris Wheel in London

Lowell Herr

AA-Mosaic Portfolio

Physlab — Fri, 15 Feb 2008 18:30:27 +0000

Without going into great detail why these equities were selected, let me explain what ETFs and stock were used to launch this portfolio. Here are the investments used thus far. They include: EFA, IJJ, DJP, VBR, VTV, VUG, VBK, VOT, VEU, VNQ, VWO, and FAST. All are ETFs with exception of FAST, a stock, and DJP, a ETN which is an exchange traded note. DJP is the commodity investment.

I will continue to explain more about asset allocation and the multiple-factor-model used to construct this portfolio. At some point I will also include a very simple portfolio, a portfolio one might title, “Portfolio for Dummies” or “Portfolio for Beginners.”� It is really a portfolio for thoughtful investors.

Physlab

Photograph: Westminster Abbey in London, England

“Bright Red” Asset Allocations

Physlab — Mon, 18 Feb 2008 22:05:24 +0000

Mykonos Island, Greece

Hebner recommends the following asset allocation for someone with maximum risk tolerance.

Large-Cap Core – 12%
Large-Cap Value – 12%

Micro-Cap Core – 20%
Small-Cap Value – 20%

REITs – 5%

International Value – 6%
International Small-Cap – 6%
International Small-Cap Value – 6%

Emerging Markets – 4%
Emerging Markets Value – 4%
Emerging Markets Small-Cap Value – 5%

I note that this portfolio does not include any growth or the growth is contained within the core holdings.� Hebner has 20 such portfolios one can select from based on ones tolerance for risk.

Bright Red Portfolio

Physlab — Mon, 18 Feb 2008 23:00:00 +0000

Ocean City, MD

Hebner, in his “Index Funds” book, color codes different portfolios. Here is a little data from his “Bright Red” portfolio, a portfolio that carries no bonds and is skewed to the value side of the investing spectrum. Here is the 12-year data concluding in December of 2006.

For the 144 months he looked at 457 rolling periods. The “Bright Red” portfolio turned in a 14.42% annualized return with an average annualized standard deviation of 3.85%. The lowest rolling return was 7.44% and the highest at 25.08%.� However, it needs to be noted, the period examined was from 1/63 – 12/74.

The portfolio did well from 1/57 – 12/06 where the annualized return was 14.22%.

If you have questions, be sure to ask about the “Bright Red” portfolio.

Physlab

Mid-Cap Value Purchase – VOE

Physlab — Tue, 19 Feb 2008 12:00:46 +0000

Milepost in Fairbanks, Alaska

On 2/14/2008, I purchased 100 shares of VOE for the AA-Mosaic Portfolio so as to bring the Mid-Cap Value asset class into balance. The purchase price was $50.10 per share and commissions were $7.00.

At this point the portfolio is under target in Large-Cap Growth and over target in Mid-Cap Growth, REITs, and Commodities. All other classes are within target ranges. The latest SS is available on my bivio site.

Lowell Herr