Smartest Medium-High Risk Portfolio

With this analysis of the medium-high risk portfolio, we leap over the medium risk portfolio found at this site. The medium-high risk portfolio limits the bond/income asset class to 20%.  Remember, we began with 80% allocated to the bond asset class, moved to 60%, then 40% and now 20% or something similar to what we hold in many portfolios tracked here at ITA Wealth Management.

Note the shift that is occurring.  As we commit a smaller percentage to bonds, the projected return increases as does the projected uncertainty.  The uncertainty is increasing at a faster rate relative to the projected return and that causes the Return/Uncertainty ratio to decline in value.  Reducing the percentage to bonds also diminishes diversity and increases the Portfolio Autocorrelation.  To increase projected return means giving up ground to several other important portfolio parameters.  Is there a way to hold on to a higher return will keeping DM, PA, and uncertainty within our goals?  Stay in touch for a possible solution within the week.

Kenilworth Portfolio Review: 20 September 2011

As mentioned in the middle footnote of News and Updates, the Kenilworth is scheduled for an update this week.  Since the last review, shares of VOT, VWO, RWX, and VUG were added to this portfolio in an effort to bring more asset classes into balance.  I also altered the asset allocation slightly by reducing bonds/income and increasing international REITs.  The yield is so high on RWX that is makes sense to capitalize on this opportunity.  Limit orders are in place for international REITs and bonds.  As new cash is added to the Kenilworth, an effort will be made to bring mid- and small-cap value asset classes within target.

Below is the Dashboard for the Kenilworth.

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Report on “New Normal” Portfolio

The following report on the "New Normal" portfolio comes from Bob Warasila, the creator of this set of assets.

The New Normal test portfolio is now at the 2 year mark and is ahead of the benchmark VTSMX.  This portfolio is based on some comments by Pimco’s co-chairs and Geoff Considine (What the New Normal Means for Asset Allocation, August 8, 2009) of QPP back in the summer of 2009 when we were not that far away from the March 2009 bottom.  The premise was we would see slow growth and high inflation for an extended time.  So far I only see the former has fulfilled the prediction.  Considine’s advise was:

1.)   Select individual stocks from Dividend Arisocrats as the choice of equity exposure.

2.)   TIPs should be used for bond exposure to protect against inflation.

3.)   High Beta stocks and/or ETFs are too risky.

4.)   An emphasis on international equity exposure is necessary to protect against a weaker $.

5.)   To these I added an exposure to precious metals, especially gold.

Considine presents some specific assets in the article so I drew from those for  my own preferences. My allocations were:

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Rule #3 of Investing

Develop a family financial plan once a saving plan is in effect and sufficient dollars are available to be invested. A financial plan will include adequate cash reserves for that rainy day that is likely to occur. Also, make sure you have proper insurance, particularly health insurance. Once the basics are in place one can concentrate on developing a portfolio plan. Although not all that well organized, one can pick up a lot of portfolio planning details by moving over to the right-hand edge of this blog and under Categories, click on Asset Allocation and Portfolio Construction.  This likely requires Platinum membership to the ITA Wealth Management blog. When you click on one of those links, you will bring up the oldest message first. Begin to read through those posts. Don’t be surprised if you find many posts reviewing older posts. Use the repetition to let the basic ideas sink in.

In the process of developing a portfolio plan, think through the principles of asset allocation. Forget about selecting individual stocks. Concentrate on what asset classes you wish to include in your portfolio and what percentage you want to allocate to each asset class. Those are the two most important decisions you will make as you begin to set up a portfolio.

If readers have any questions, place them in the comments section available with each blog entry. Another way to get questions answered is to read investment books. My favorites are found inside several posts on this blog. Check out the Books link under Categories.