09/11/2011

We first compared asset allocation portfolios using dividend ETFs (and bond ETFs) and those using income mutual funds on SeekingAlpha.com Retirement Income Investing: ETFs vs. Mutual Funds more than two months ago. Let's review these two plans: Retirement Income ETFs  and  Schwab Income Mutual Fund Select List.

Here are the asset classes covered by the two plans:

Little in the two plans' investment choice ratings has changed since then.  As of Sep 9, 2011, Retirement Income ETFs investment choice is rated as average and Schwab Income Mutual Fund Select List investment choice is rated as above average based on MyPlanIQ Plan Rating methodology that was designed to measure how effective a plan's available investment funds are . It has the following detailed ratings:

Performance chart (as of Sep 9, 2011)

Performance table (as of Sep 9, 2011)

Refer to detailed portfolio comparison.

Again, we are seeing income ETFs can still rival the well selected income mutual funds. This is a good news for income investors in their IRA investments or taxable account investments. ETFs have more flexibility and have a well defined and simple indexing strategy (isn't this what MyPlanIQ is also doing?).

Disclosure:

MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Symbols: SPX, VIG, DVY, SDY, ICF, RWX, HYG, LQD, IEF, TLT, TIP, AMJ, TWEIX, LISOX, CSRSX, PTTDX, Retirement Investments, IRAs, ETF Portfolios, Portfolio Management, Risk Management, Dividend ETFs

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05/17/2011

"Mother was wrong: What you don't know can hurt you", that is a quote from a Wall Street Journal article Stress-Test Your Portfolio, written by Jonathan Burton. 

The following main risks were outlined in the article: 

• Inflation and Interest Rates: inflation usually comes with rising interest rates. That could reduce the value of existing bonds and cash, thus purchasing power. This is especially painful for baby boomers and retirees. Best Bet: 
  • U.S. & international stocks (SPY) (EFA)
  • commodities (DBC) (GSG)
  • inflation-protected bonds (TIP)
  • real estate investment trusts (IYR) (VNQ)
  • cash. 
• Disasters, War, Political and Economic Upheaval and Social Unrest: these unpredictable events are like black swans. Best Bet: 
  • Precious metanls like gold (GLD) or silver (SLV)
  • U.S. treasuries (TLT), (IEF)
• Markets and Companies: individual companies or even sectors have risks specific to themselves. Best Bet:
  • Diversification, no overlapped in terms of mutual funds, ETFs
• Playing It too Safe: to avoid risk is just not to join the game. However, you can miss major market advances and lose the purchasing power (even if you just want to preserve your capital). What is more dangerous for this type of investors is that they often sit on the sideline and capitulate at last, only getting into an already overheated market, resulting in big loss in a buy high, sell low fashion.  Best Bet: 
  • Put enough money (such as five year expense) in a bank and then the rest into a diversified portfolio with a risk you can accept. Rebalance regularly. 

The above risks are especially important in retirement investing: investors rely on their investments to fund their retirement needs.

The Six Core Asset ETFs is a Simpler Is Better (SIB) plan that has only SIX candidate ETFs that cover all of the major asset classes: 

• U.S. Equity: Vanguard Total Stock Market ETF (VTI)
• Foreign Equity: Vanguard FTSE All-World ex-US ETF (VEU)
• Emerging Market Equity: Vanguard Emerging Markets Stock ETF (VWO)
• Real Estate Investments Trusts (REITs): Vanguard REIT Index ETF (VNQ)
• Commoditiies: PowerShares DB Commodity Idx Trking Fund (DBC)
• Total Bond Market: Vanguard Total Bond Market ETF (BND)

Check out its Strategic Asset Allocation Moderate and Tactical Asset Allocation Moderate model portfolios. 

Or for more active investors, check out TD Ameritrade Commission Free ETFs that has over 101 ETFs as candidate funds. 

Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Exchange Tickers: (VTI), (VEU), (VWO), (VNQ), (DBC), (BND), (GLD), (SLV), (TIP), (TLT)

Symbols: VTI, VEU, VWO, VNQ, DBC, BND, GLD, SLV, Portfolio Strategies & Asset Allocation, IRAs, Retirement Investing, Risk

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