VTI Switches Indices: Are You Concerned?

If I were to hazard a guess, most readers of ITA Wealth Management are not aware that VTI made a switch its underlying index benchmarks from MSCI to the CRSP indices (for US exposure) and FTSE indices (for international).  While this is of some concern, it will not significantly impact our portfolios as we do not invest only in the VTI index.  While the VTI will lose some exposure to mid- and small-cap cap stocks, we pick up those asset classes by over-weighting our asset allocation plans to smaller cap stocks.  In addition, we skew our portfolios to the value side of the investing spectrum based on research that tells us – over the long run, value stocks outperform growth stocks.

The move by Vanguard’s VTI ETF is not trivial, but we do not need to be concerned due to the way we build our portfolios.  Nevertheless, one wants to keep abreast of these changes and that is why I bring it to your attention.  Click on the provided link for more details.

Kenilworth Portfolio Review: 23 November 2012

Early this month I purchased a few shares of VOT to bring mid-cap growth back into balance.  Another change in the Kenilworth occurred back on 10/24/12 when I sold shares of DBC as the price of this commodity ETF was below its 195-Day EMA.  That is the reason the commodity asset class is below target.  Remember, the Kenilworth is one of the ITA Risk Reduction model portfolios.  I will need to see where the price of DBC ends up at the close of today’s shortened trading day.  No DBC decision will be made before Monday as I do not wish to incur a short trading fee from TDAmeritrade.

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A Very Basic Three ETF Portfolios

In response to the keep it simple blog post, here is a three ETF portfolio analysis.  The 30% allocation to bonds (BND) pulls down the projected return to 6.2%.  Allocating that percentage to bonds also holds down the projected volatility to 12.8%.  Note that this simple portfolio outperformed the S&P 500 over the past five years, and did it with a lower standard deviation.

With only three ETFs the Diversification Metric is low.  This is not unexpected as one needs to work to build a diversified portfolio.  A beginning investor could do a lot worse than to set up this sort of asset allocation and stick with it over a lifetime of investing.

What do other readers think of this asset allocation plan?