Monday, March 23, 2009

An Almost Classic ETF Index Portfolio

O.K. So, here is the first of my own fun benchmarks. I call them fun because they are all based on stuff that I have read on the Web or in books. They were all presented as ways to practise buy and hold investing.

None of these portfolios exactly mirror the original portfolios. They reflect my thinking after being strongly influenced by my reading.

I call my first benchmark - My Almost Classic ETF Index Portfolio
It is composed of:
20% Money Market Fund - I use the Saxon and the Royal Bank money market funds.
30% XSB - this takes care of the bond exposure
35% XIC - this takes care of the Canadian equity market
15% XSP - this gives a some exposure to a foreign market

A pure classic portfolio simply puts 1/3 in each of the following: XIC, XSP, XIN. I had a benchmark based on this for some years but was not impressed with its performance. Very volatile and not a lot of income from dividends.

As a retired person, I need the ability to get at some cash quickly. This explains the generous money market holdings in my version of the classic.

The bond holdings are there because of my age. They lessen the portfolio's volatility. In the past year, bond ETFs in a portfolio have delivered as promised and mellowed out the financial ride. I worry that going forward, as interest rates rise, bond ETFs will become a drag.

The last two ETFs are the equity portion of my benchmark. Being retired, I wanted to minimize currency risk and so weighted this fun portfolio towards Canadian equities. Lastly, I plunked all my imaginary money in the States for my foreign exposure. (In reality, I have portfolio exposure in Europe, Asia, and South America, along with the States. This diversification in my own portfolio has not delivered the protection from volatility as hoped.)

Since starting this blog, this Almost Classic ETF Portfolio is up almost 6% as of Sunday! But, this means nothing over such a short period.


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