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The EZ Approach to ETF Portfolio Building

by Maria Crawford Scott

The EZ Approach To ETF Portfolio Building Splash image

As investment products increase in number, complexity and cost, many individuals are plaintively searching for an investment approach guided by two very basic principles:

  • Keep it simple, and
  • Keep it cheap.

Exchange-traded funds (ETFs) offer a useful starting point for such an investment approach.

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Maria Crawford Scott is the former editor of the AAII Journal.


Discussion

Patrick from Illinois posted over 2 years ago:

Pretty boring. I have a lot of ETFs and none of yours. I have SDY, XLP, XLU, DVY, AMLP, PFF, PMM, JTP, JNK. Not sure what you're trying to do but I'm interested in capital preservation, income and growth.


Daniel from Alabama posted over 2 years ago:

Clear and plain advice for building a solid core portfolio at rock-bottom cost. Allocation decisions based on time-horizons and risk tolerance are of course the next step. A simple guide to allocation decision-making would be good topic for a follow-on article.


Steven from Georgia posted over 2 years ago:

Far too many...over diversified. Can you narrow it down to five?


Darrel from Washington posted over 2 years ago:

This is a good introduction for easy investing using simple building blocks to achieve an investors asset allocation model.


Philip from Connecticut posted over 2 years ago:

what about bonds other than u.s. govts?


Judy from North Carolina posted over 2 years ago:

Thank you. This helps me tremendously. I've been flip flopping in the market with stocks. I like the protection of diversification in both the etf's and funds. I will apply it for 2012.


Peter from Florida posted over 2 years ago:

I agree that this is a useful start, but there should be more research done to find dividend paying ETF's.
Dividends are the key to generate income during low interest rates from other sources.


Kent from California posted over 2 years ago:

Why is AII directing us to an article written in 2005 when 2012 is one week away? Things changes, such as global financial factors, global debt wories etc.


CWG from Virginia posted over 2 years ago:

Yes, this is a VERY dated article. There are now municipal bond ETF's and I would argue that currently the best total international core ETF is from Vanguard (VXUS), which includes large, medium, and small companies from both developed and emerging markets.


Bruce from California posted over 2 years ago:

The PDF download is dated October 2005, perhaps that should have been noted in the online reprint. That wouldn't detract from its value, it would present a "full and honest disclosure" attitude.
Bruce Osterberg


Fab from Illinois posted over 2 years ago:

This sounds like a good start, but it would be useful to have some ideas about capital allocation and portfolio rotation. I am surprised in not seeing some heavyweights such as: GLD (gold), USO (oil), EEM (emerging markets), ICF (REITS)... Maybe in the next article? Cheers.


F from Virginia posted over 2 years ago:

I have a good selection of 5 Vanguard funds and recently have added 3 Vanguard ETF's. There is not too much overlap in the funds. The real question to me is whether to shift to all ETF's? They are all in an IRA so taxes are not currently an issue.


Tom from North Carolina posted over 2 years ago:

Some good suggestions in the article. I like having a REIT ETF (Vanguard VNQ) for additional diversification. Peter may like SDY as a dividend paying ETF. How about an update to the article with the inclusion of more recent ETFs?


Thomas from California posted over 2 years ago:

Investing principles may be unchanged, but the world picture and economic conditions are clearly different than they were in 2005. An updated list of ETF's is clearly needed.


Judy from North Carolina posted over 2 years ago:

already 0posted


George from Florida posted over 2 years ago:

I have had moderate success by rotating in and out of some ETFs. I couldn't do that with mutual funds so I sold my last one in 2011. My portfolio has 14 ETFs, four are on table two. While the article may be dated, its basic premise is still valid. Complexity can be a burden.


Michael from Georgia posted over 2 years ago:

I recommend anybody who wants to follow something like this read "The Ivy Portfolio".

To summerize. Domestic (SPY), International (EFA), Mid-Term Bonds (IEF), Commodities (DBC), Real Estate (VNQ).

Check monthly. 20% of portfolio to each and get in when above 10MMA and out when below.


Barbara from Georgia posted over 2 years ago:

This was written in 2005...PLEEZE!!!


Francis Robinson from Virginia posted about 1 year ago:

Want to keep it really simple and really cheap (no cost)? Stick with all Vanguard ETFs. Go to etfscreen.com to track relative strength trends and re-allocate as rotations occur as often as you choose.


T Ibbs from Florida posted about 1 year ago:

Sometimes index mutual funds have low expenses, too. I like.

VTIAX
Vanguard Total International Stock Index Fund Admiral Shares

VFIDX (I'm not a huge fan of govt bond funds)
Vanguard Intermediate-Term Investment-Grade Fund Admiral Shares

XLU
SELECT SECTOR SPDR TRUST SBI UTILITIES OR
XLU
SELECT SECTOR SPDR TRUST SBI UTILITIES

and of course
VWIUX
Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares as well as buying individual muni bonds held to maturity if you muni bond portfolio is > $100,000


Bedford Joyner from Tennessee posted about 1 year ago:

You left out the 2nd largest ETF and a whole asset class.

GLD


Robert Mclaughlin from Virginia posted about 1 year ago:

Israelsen 7Twelve is a portfolio proposed by Craig L. Israelsen, Ph.D.. Another is the lazt ETF portfolio by David Swensen, the Yale Endowment Manager which has about 6 ETFs in the portfolio. These and other "lazy" portfolios provide better returns in the long run than actively managed mutual funds and only need to be rebalanced one a year


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