Three-Year Anniversary

Today is the three-year anniversary of ITA Wealth Management.  Thank you for checking in from time to time to view what I am trying to articulate.  In the three years, nearly one million viewers requested this blog.  Of course this is counting crawlers from Google so the number of live readers are much lower.  I think I've seen a viewer from every country except North Korea.

Approximately eight months ago a Swedish hacker got into the servers where my blog was hosted and corrupted the editor.  I lost well over a thousand entries and have been trying to rebuild the site ever since.  Most of the critical material is now back on line.

Portfolio Development

Thinking Through Portfolio Construction

Within the last few weeks I read a post on the Internet that I threw into my "fear bag."  The thesis of the post focused on Decision One as articulated by Goldie and Murray in their little book, "The Investment Answer."  The writer claimed the small investor was courting disaster if they managed their own money.   Readers may recall the Goldie-Murray decision #1 was whether or not to manage your own portfolio.  Goldie and Murray advocate investors seek a fee based advisor and let that individual or company manage your money.  I take the opposite point of view as I think the small investor is very capable of managing their personal portfolio.  Here at ITA Wealth Management, we attempt to educate readers how they can do it themselves while saving 50 to 90 basis points annually.  Saving those fees works right to the bottom line.  On a $50,000 portfolio that is a minimum saving of $250 per year and likely more as money managers charge a higher percentage for smaller accounts.  

In the Preface of his "Investor's Manifesto" book, William Bernstein writes, "The body of knowledge that the individual investor, or even the professional, needs to master is pitifully small."  What are some of the key elements or "pitifully small" number of concepts one needs to master in order to construct and manage a portfolio?

1.  The primary decision facing each investor is the overall percentage one allocates to stocks and bonds.  This broad decision determines the Return/Risk characteristic of the portfolio.  To aid readers in this first and very basic decision, I recommend you take the Risk Capacity Survey found over on the Index Funds Advisors web site.  Use the recommended Stock/Bond breakdown as a guideline.

2.  Assume the survey recommends you invest 40% of the portfolio in bonds and 60% in equities.  If so, then how do we allocate our bond holdings?  Spread your holdings out over several different time periods using BSV (short), BIV (intermediate), and BND (long) as your ETFs of choice.  Additional bond and income choices may include TIP, HYG, IEF, and TLT.  If you were to invest 10% in TIP and 5% in each of the 6 remaining ETFs, you would be well diversified over the bond/income market.  Risk is spread out and disaster is likely avoided.

3.  What do we do with the remaining 60% of the portfolio or the equity portion?  One could put all 60% into VTI, the broad U.S. equities market.  However, this would leave developed international and emerging markets out of the portfolio – not a good idea in our global economy.  Exposure to REITs would not be present.  International REITs and commodities are not even part of this discussion.

4.  How you split up the 60% equities portion is up to you and the Risk Capacity Survey will help as will the many examples provided here at ITA Wealth Management.  A generic percentage mix may look like this.  Allocate 30% to VTI or the broad U.S. equities market leaving 30% to be divided among developed international, emerging markets and REITs.  The simplest decision is to put 10% into each asset class.  ETFs we use for these three asset classes are VEU, VWO, and VNQ.

We now have seven ETFs covering the bond and income portfolio of the portfolio.  Another four ETFs will blanket the equity side of the portfolio.  Platinum members know that a preference is given toward value and smaller cap asset classes for reasons based on the Fama-French research.  For more information, one needs to search deeper into this blog for that information.


Platinum membership is available for $5.00 per month.  Learn more about constructing, managing, and monitoring your portfolio.