Asset Allocation: Moderate Portfolio

Analysis of a Moderate Portfolio

Changing the asset allocation from growth to moderate requires a shift in the percentages allocated to the six basic asset classes. In the following portfolio we lower the percentage allocated to the broad U.S. equities market, REITs, international, and emerging markets. The percentage allocated to bonds increases significantly. Were I not sticking with the same six ETFs, I would split the bond allocation among several different bond ETFs. In this example, I will not make such a change as I want to show how different allocations to the basic six ETFs will change the Return/Risk ratio. Also, is the Diversification Metric (DM) altered significantly?

As readers can see in the analysis below, the Return/Risk ratio improves from 0.51 to 0.54 as we move from the growth to the moderate portfolio. The Diversification Metric also improves by a few percentage points. What one gives up for these improvements is return.

[Read more…]

Photo Show of Europe Trip

Readers interested in viewing a 19 minute show of a recent trip to Europe are welcome to follow the instructions below.

Stop if you are using a Mac as Photodex does not provide a viewer for their software. If Windows is running on a Mac, that will work.

1.  You must have a Windows computer as Photodex does not have a Mac viewer.
2.  Go to this site.
3.  Near the upper right is something called Sharing. Click on it and pull down the options.
4.  Click on Browse Member and you will see a box asking for Member Galleries. Type in "physlab" without the quotes.
5.  Nearly all my shows are available and you will want to look for the one called England.  It is the white sculpture from Portugal or the same picture found on this blog entry.
6.  If you have not viewed a Photodex show for some time you will need to download and install the latest viewer.  Follow instructions.
7.  Give the show time to "buffer" or download and when it does, you will begin to hear music. Before starting the show, right click the mouse and request Full Screen.
8.  Click on the center of the picture to begin the show.
9.  To exit the show before it is complete, use the ESC key.  The show is approximately 19 min long.

The better the sound system the better the show.

Stock Market Value vs. GNP

Are stocks priced fairly? Check out Warren Buffett's stock market value vs. GNP at this site. Once on the site, click on this link to see the graph. While stocks are not overly cheap, the market, according to this theory is priced about where it was back in 1971.

Sortino Ratio Update

Investors using the TLH spreadsheet and in particular, the SR worksheet, will find this video/audio clip a refresher in updating the Sortino and Retirement ratios. One of the first changes to make in the calculation is to update the inflation rate. The latest data shows inflation moving from 1.1% to 1.2%. Readers can find this information on a site titled, U.S. Inflation Calculator.

In the video/audio clip I used the Madison Portfolio spreadsheet, a portfolio not available to readers. The operation will be the same for your TLH tracked portfolio. I did fix one bug in the SR worksheet and that had to do with the count number. Upon further research, I found when running the semivariance calculation, one needs to count all data points, not just those points where the IRR of the portfolio failed to outperform the IRR of the benchmark. Below you will find the link to the video/audio clip where I walk readers through the monthly update. [Read more…]

Ten ETF Commandments

An Internet friend pointed out this site that features many key ETF guidelines. The catchy title of "Ten Commandments of ETF Investing" does not hurt either. While I consider all these commandments valuable, I recommend concentrating on #s 10, 9, and 3. When you have more time, come back and review the other seven.

Portfolio Performance Data

Portfolio Performance Data Table

Below is the weekly update for portfolio performance. If you are comparing SR and RR values from past weeks, there are some major shifts in the values as I corrected a bug in the semi-variance calculation. Some of those corrections took place last week, other changes were made this week. I still need to do some close "desk checking" as there are still two portfolios that don't look quite right.

The weekly changes were minor, but in general, the VTSMX benchmark gain a small amount of ground on several of the portfolios. As we come out of the recession/depression, Large-Cap stocks are doing better than the smaller companies and that aids the VTSMX as it is heavily weighted toward Large-Cap stocks.

Portfolio Performance - 11/19/2010

Portfolio Last Update Launch Date Tracking Tool Port. IRR ITA Index Diff Port. vs. ITA Index VTSMX IRR Diff. Port. vs. VTSMX Index IR SR RR
AA-Mosaic 09/301/2010 07/21/1999 Captool 1.95% NA NA -0.42% 2.37% 0.05 NA NA
Curie 11/19/2010 12/26/2007 TLH SS 3.7% -0.4% 4.1% -1.9% 5.6% NA 15.0 4.3
Mosaic2 09/30/2010 07/19/1999 Captool 4.37% NA NA -0.61% 4.98% 0.15 NA NA
Newton 11/19/2010 06/02/2008 TLH SS 8.3% 4.6% 3.7% 5.2% 3.1% NA 3.6 3.6
Passive Port. 10/29/2010 12/01/2000 Captool 4.9% NA NA 2.0% 2.9% 0.69 NA NA
Schrodinger 11/19/2010 12/01/2000 TLH SS 4.9% 10.1% -5.3% 2.2% 2.7% NA 5.1 5.1
Jane 09/30/2010 02/14/1997 Captool 8.69% NA NA 3.07% 5.62% 0.53 NA NA
Einstein 11/19/2010 06/30/2008 TLH SS 13.7% 20.1% -6.4% 9.0% 4.7% NA 1.6 1.6
Gauss 09/30/2010 02/19/1997 Captool 8.86% NA NA 3.04% 5.82% 0.22 NA NA
Kepler 11/19/2010 11/01/2008 TLH SS 22.1% 32.2% -10.1% 19.3% 2.8% NA 1.1 1.1
Scrappy 09/30/2010 08/14/2008 Captool 10.53% NA NA -4.12% 14.65% NA NA NA
Bohr 11/19/2010 08/14/2008 TLH SS 11.5% 13.6% -2.1% 2.6% 8.9% NA 4.5 3.8
Kenilworth 11/19/2010 08/18/2010 TLH SS 29.6% 22.1% 7.6% 43.9% -14.3% NA -0.1* -0.1*
Projects 10/29/2010 12/01/2000 Captool 5.1% NA NA 0.02% 4.9% 1.32 NA NA
Washington 10/29/2010 06/18/1999 Captool 2.9% NA NA 3.1% -0.2% 0.27 NA NA
Maxwell 11/19/2010 12/25/2000 TLH SS 0.3% 2.0% -1.6% 3.3% -3.0% NA -0.2 -0.2
Adams 10/29/2010 06/18/1999 Captool 2.3% NA NA 3.1% -0.8% 0.70 NA NA
Euclid 11/19/2010 06/30/1999 TLH SS 0.6% 1.0% -0.4% 3.3% -2.7% NA -0.1 -0.1
Jefferson 10/29/2010 03/13/2008 Captool 5.9% NA NA 6.6% -0.7% NA NA NA
Madison 11/19/2010 03/13/2008 TLH SS 5.5% 1.9% 3.6% 7.3% -1.9% NA -0.4 -0.4

How Would You Balance the Federal Budget?

If Congress were to ask you how to balance the federal budget, what suggestions would you pass on? Place your suggestions in the comment section below.


Photograph: Longboat Key – Sarasota, FL

Stop Drinking Your Retirement

Practicing Self-Discipline

This week I was in a meeting and to no surprise I witnessed at least one participant drinking bottled water. I kept quiet as it made no sense to offend anyone, but it did not stop me thinking – suppose one drank from the tap and saved the difference? What would that saving amount to over a lifetime? A quick calculation can be found at this bottle calculator site. It is not difficult to drink $1,000 a year of bottled water. While that will not add up to a huge retirement fund, it can make a big difference if the growth is five to seven percent per year. Add beer, wine and soft drinks into the budget and it begins to add up to real money. This is not meant to be a "kill joy" blog entry, but rather a reminder of what is required to build a retirement account. 

Back to bottled water. One of my best links, Bottled Water: Another Look, was removed from the Internet. I suspect the originator of this photographic essay on plastic pollution was too strong and pressure to remove the site came from the bottled water industry. We still have a few sites that carry the message of bottled water and pollution. If you are interested in some technical information, check out this site.

As William Bernstein, Charles Ellis and others point out, one needs to begin saving early in life if there is any expectation of ending up with an acceptable retirement portfolio. Eliminating bottled water and soft drinks, while small on a daily basis, adds up to significant expenditures over a lifetime. Don't drink away your retirement portfolio using unnecessary beverages.

Portfolio Update

Newton Update


The reason for the early update of the Newton portfolio is due to the transactions over the past week. The latest updated spreadsheet is available to Platinum users. Let me know if you have problems opening the spreadsheet as our Excel versions may not mesh. The following screen shot shows the Dashboard or the asset allocation plan.

I added commodity shares of FAN and two water ETFs. International REITs were also purchased, but this asset class is still below target. Limit orders are in place to emerging markets. This asset class is overbought in my opinion so we are patiently waiting for better buying opportunities.


The performance numbers are presented below. The Newton is still performing very well with respect to the VTSMX and ITA Index benchmarks. [Read more…]

AAII Journal: November Issue

As a lifetime member of the American Association of Individual Investors, I receive their journal each month. The November issue was of particular interest as it included 20 pages of the best financial web sites on the Internet. In addition to all those investment links this issue carried their ETF portfolio of which I analyze in a post tomorrow.

There is also an article, "Is the Stock Market Efficient?" written by Prem C. Jain, professor at Georgetown University. Jain argues that the market is inefficient even though he does conclude that most professional money managers do not generate above average returns in the stock market, nor do most individual investors exceed market returns. However, he contends he can outperform the market. We are not told for how long he is able to beat the market, what benchmark is used, how the benchmark is calculated, or what risk is involved in this effort.

This issue of the AAII Journal is one investors should keep until the next list of investment links are posted.


Photograph: Otto as a pup.