Remaining on the right side of the market is critical to reducing portfolio risk. Platinum members should be well aware of the ITA Risk Reduction model, our first line of defense. Remember Faber's axiom that ETFs are more volatile when they are priced below the 200-Day Simple Moving Average. Here at ITA we use a faster EMA, but the difference is not significant and the principle is the same. Most investors will want to stop right here and work with this basic, and easy to understand risk reducing model. Investors wanting a little more protection in addition to the price and 195-Day EMA relationship can move to the second line of defense.
Bob Warasila passed on several references from the http://www.ifa.com web site that deal with portfolio construction. [I consider Mark Hebner's web IFA site to be one of the best available.] Keep in mind that IFA is a company that uses Dimensional Fund Advisors (DFA) mutual funds and the only way one gains access to these funds is through an approved advisor such as Index Funds Advisors (IFA). The cost to gain access runs around 90 to 100 basis points. This is a significant drag on the portfolio as shown by this article.
I am breaking these suggestions into two blog posts as the first two links are geared toward beginning investors. However, both presentations are useful to more experienced investors as portfolio construction is essential to building future wealth.
The first link focuses on asset class diversification.
The second link features non-US and fixed asset classes.
In a later post I will provide a link to class comparisons.
If you are looking for a comprehensive book on index investing, Hebner's book, advertised on his site, is an excellent volume for the price. The book can also be read on-line at IFA.
Second quarter dividends are beginning to roll into all the portfolios and the Einstein is no different. Those added earnings are not recorded in this update, slightly short-changing the performance results. We will report changes due to dividends with portfolio reviews next week. It is unlikely the size of the dividends will throw any of the Einstein asset classes out of balance.