QPP Analysis of Faber Ivy Ten Portfolio

Yesterday I analyzed the Faber-Richardson Five portfolio found in The Ivy Portfolio.  In this post, Platinum members will find the QPP analysis of the Faber-Rickardson Ten.  I used the same five-year time frame so readers can compare the two results.  Improvements and negatives come with this expanded portfolio.

While the projected return moves up to 8.2%, we give up risk as the projected portfolio uncertainty increases to 16.6%.  We would need to temper this portfolio with something like the ITARR model as anything over 15% begins to raise concerns, particularly if one believes we will see another three sigma bear market within the next five to ten years.

With this expanded portfolio we see a decrease in both diversity and Portfolio Autocorrelation.  While that may surprise readers, these are the projections.  Granted, the differences are likely well within the limits of uncertainty.

My primary criticism of the Faber-Richard Ten portfolio is with the 20% allocated to commodities.  I'm not comfortable with such a high percentage as I favor something in the order of 5% or no higher than 10%.  In a number of portfolios I use IWN instead of VB.  Over the last five years VB has a better record so it may be time to consider a switch.

Quantext Portfolio Planner Analysis of Faber Ivy Portfolio

As promised, here is the first of several Quantext Portfolio Planner (QPP) evaluations of the portfolios mentioned in an earlier post.  In this QPP analysis I'll look at the Faber-Richardson Five ETF portfolio.  Equal percentages are allocated to each ETF so there is no fudging with the percentages to increase return or reduce risk.  This array of ETFs is a solid starting point for a beginning investor.  The one change I recommend is to reduce the 20% exposure to commodities (DBC) down to something like 5%.  Add TIP or international real estate (RWX) to the portfolio.  Those will show up in later analysis.

Platinum membership available for $5.00 per month.  Enhance the return and reduce the risk of your portfolio and pay for the membership.

[Read more…]

Who Is Responsible For Your Retirement?

With pension plans on the decline, corporations squeezing employees, and unions under attack, individuals will need to take more responsibility for their own retirement programs.  Those are the hard facts.  At one time an individual or a small group of people within a corporation managed the pension plan for a large number of employees.  The employee had few retirement planning decisions to make as these were made by managers thought to have a better understanding of what was best for the employee.  And in many cases this was true.  Since that system is on the decline, individual workers need to shift into their retirement gear and quickly learn about saving, portfolio construction, and portfolio maintenance.  Frankly, I don't hold out a lot of hope for the majority of American workers.  When I read about the miserably low saving rate and the small amount of money the vast majority of workers have in saving going into retirement, one can only think of buying stock in the pet food industry.  It is a sad situation.

Instead of moaning about the problem, folks who know a little about saving and investing need to bring this crying need to the attention their friends and neighbors.  Instead of thinking about tens of thousands in saving, today's worker needs to gear up for saving hundreds of thousands of dollars.  While big numbers sound ominous and impossible to attain, it is not.  The key is to begin early and never stop. 

Not only does retirement planning mean saving, but it also means setting up a low cost portfolio so one is not throwing away $150,000 in a lifetime of fees, as most families manage to do based on recent studies.  To get started, I highly recommend new investors read all the 100 Level material found on this blog.  Check Categories in the right-hand sidebar for links to this information.

When it comes to portfolio construction, by all means use index funds or non-managed index ETFs such as VTI, VEU, VWO, VNQ, and BND.  Absolutely stay away from actively managed mutual funds unless you want to send the money managers children to Harvard instead of educating your own children.  If you are looking for a well-diversified, yet simple portfolio, consider the Swensen Six portfolio.  Eventually, one will want to expand into one or two more asset classes, but for starters, this is an excellent portfolio to get investors launched.

Check out this link to see what might be required to provide a comfortable retirement.  Read a few of the Ten Top Investment Books and review the Retirement Planning blogs.  You will find the links under Categories in the right-hand sidebar.  Look under the 200 Level material.

Keep coming back for investment help and don't stop asking question.  You are now responsible for your retirement planning.  Don't put it off.