Featured Post

Clearly, Not Everyone Is Getting Rich Off The Stock Market

By -
Image
Well, the NY Fed was out today with its Quarterly Report on Household Debt and Credit for Q4 2017. Clearly, Americans are in a lot of debt. Take a look. Just a couple of quick hits from the report. Total U.S. household debt rose $193 billion in the 4th quarter, to a new all-time peak of $13.15 trillion. That's 17.9% above the most recent trough in Q2 2013. Broken down by segment, what do you suppose was the largest gain in percentage terms? Credit cards, with a 3.2% increase. In the picture above, the widening gap represented by the red arrows reflects the fact that non-housing debt is rising at a faster pace than housing debt. Here's what's troubling about that. Below is a picture of the stock market, as represented by the S&P 500 index, over that same period; from the most recent credit trough in Q2 2013 to the end of 2017. And thus, the title of this article. Over that period, the S&P 500 index rose by 75%; from roughly 1,600 to 2,800. Apparently, ho...
9 comments

Is Simpler Always Better?

By -
A quick thought for today.

Regular readers will know that, in general, I am in favor of relatively simple portfolios, constructed with low-cost, quality ETFs.

I just completed building The ETF Monkey Millennial Model Portfolio for Seeking Alpha. This portfolio is comprised of 7 ETFs, covering U.S. stocks, foreign stocks, REITS and bonds.

I received this comment from a reader:
The proposed portfolio is overly complicated. Why don't you simplify the above to 90% VT + 10% AGG or 90% VTI + 10% AGG? Slicing and dicing may look cool. But it promotes more rebalancing which creates more trading and thus more costs.
While I am in favor of simple portfolios, there are on occasions valid reasons to use two (or three) ETFs when it could be argued that one would do.

Let me give a simple example from this portfolio. Instead of using the Vanguard FTSE All-World ex-US ETF (VEU) for the portion of the portfolio dedicated to foreign stocks, I used a combination of the Vanguard FTSE Developed Markets ETF (VEA) and the Vanguard FTSE Emerging Markets ETF (VWO).

In this case, I did it for two specific reasons. First, the ratio of emerging markets to developed markets is fixed in VEU. As shown here, it is 19.20%.


Since I was designing a portfolio for millennials, with a long time frame ahead of them and therefore a little higher tolerance for risk, I actually increased the relative allocation of emerging markets. Here are the asset allocations for the portfolio:



Look at the portion highlighted in green. You can see that, of the overall 35% allocated to foreign stocks, I allocated 8% of this to emerging markets. That's 22.86%, a little higher than the fixed allocation in VEU.

Additionally, developed and emerging markets don't always move in sync. By using 2 ETFs, I also have greater opportunities to rebalance the portfolio should there be a significant divergence in one of the asset classes.

Finally, the expense ratios are typically cheaper for developed market ETFs than emerging market ETFs. VEA comes in at .09%, VEU at .13% and VWO at .15%. If an investor wants to lean heavily in favor of developed foreign markets, with perhaps just a tiny allocation to emerging markets, this too can be a nice, albeit minor, benefit. 

In summary, I like simple portfolios. But there are also times when breaking things down may offer desirable benefits.

Comments

Post a Comment

Popular posts from this blog

Clearly, Not Everyone Is Getting Rich Off The Stock Market

By -
Image
Well, the NY Fed was out today with its Quarterly Report on Household Debt and Credit for Q4 2017. Clearly, Americans are in a lot of debt. Take a look. Just a couple of quick hits from the report. Total U.S. household debt rose $193 billion in the 4th quarter, to a new all-time peak of $13.15 trillion. That's 17.9% above the most recent trough in Q2 2013. Broken down by segment, what do you suppose was the largest gain in percentage terms? Credit cards, with a 3.2% increase. In the picture above, the widening gap represented by the red arrows reflects the fact that non-housing debt is rising at a faster pace than housing debt. Here's what's troubling about that. Below is a picture of the stock market, as represented by the S&P 500 index, over that same period; from the most recent credit trough in Q2 2013 to the end of 2017. And thus, the title of this article. Over that period, the S&P 500 index rose by 75%; from roughly 1,600 to 2,800. Apparently, ho...
Read more

3 Best International Total Market ETFs

By -
As I feature in this educational article from my personal blog, there are good reasons to include exposure to foreign, or international, markets in your portfolio. Two key reasons are potential for growth and diversification . In this article I wrote for Seeking Alpha, I review what I consider to be your 3 best choices in this sector. Enjoy! ----------- Authors Note: If you like my work, I would be profoundly grateful if you would take a minute to follow me on Twitter , Facebook , and/or Google+ , as well as feature my work to friends, colleagues and/or relatives who may be interested in the subject matter. Growing one's readership base is critical to any author and I am no exception. Your support will enable me to continue my efforts.
Read more

Has Starbucks Lost Its Way?

By -
Image
I couldn't help but notice that same-store-sales in the quarterly results announced today fell short of expectations. For me, this did not come as a total shock. ETF Monkey has loved Starbucks for years. In the course of my work travels, I frequented their locations in Seattle back in the days when they were small. They were amazing. The quality of everything they served was top-notch. I wanted to meet their HR person, because my experience was that virtually every employee went above and beyond your expectations. It was like they had enjoyed a little too much of their own product, but in a good way. Cheery, bubbly, upbeat. And then they got big. Very big.
Read more