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

Mykonos Island, Greece

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

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.

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

Mykonos Island, Greece

After spending time with Mark Hebner’s “Index Funds” book and rereading Gibson and Ferri, I am rethinking the asset allocation strategy for the AA-Mosaic Portfolio. Here is my current asset allocations for the major classes. In other words, I am not breaking the cap zones into growth, blend, and value at this point. Nor am I identifying the individual ETFs. That will come later.

• Large-Cap – 15%
• Mid-Cap – 15%
• Small-Cap – 20%
• International (developed countries) – 20%
• Emerging Markets – 15%
• REITs – 7%
• Commodities – 7%
• Cash – 1%

This is an aggressive asset allocation strategy and it is not for all investors. To move toward a more conservative portfolio, one would decrease emerging markets and small cap, while increasing large cap and possibly adding in some bonds. I may shift toward a little more conservative approach as it would likely suit a greater percentage of investors. This asset allocation strategy is still in the embryonic stages of my thinking.

Lowell Herr

Yangtze River, China

On 2/20/08, 100 shares of VB (Small-Cap Blend) were added to the AA-Mosaic Portfolio. The spreadsheet containing this information has not been posted to the bivio site. This will happen later. The move to add and ETF in this area is a move to increase the percentage allocated to the small-cap group of equities.

Photograph:  As I recall, the bridge in the photograph will be removed as the Yangtse rises.  When we were on the river, it had another 75 meters to rise due to the filling of the Three Gorges Dam.