One way I keep pace with the industry is by seeing how much it costs to create a model, balanced portfolio using the cheapest available ETFs. I use a sample allocation that might fit an aggressive younger investor with a long time horizon:
- 40% Broad Market U.S. equities
- 35% Foreign Equities
- 15% Fixed-Income (broadly diversified)
- 5% REITs
- 5% Commodities
You could quibble with the weights, choices and omissions, but at least it's in the vicinity.*
Right now, that portfolio can be bought with a blended expense ratio of 0.16%. Sixteen basis points!
Five years ago … heck, two years ago … you’d be looking at a multiple of that.
And that doesn’t even go down the path of all the interesting things you can layer on top. I find the hedge fund like products, such as the DB currency fund and the BuyWrite ETN, very interesting, as they open up new areas of the market to all investors. And the various strategy, sector and style funds work for folks, as well.
This is not a recommendation, either of the weights or the underlying ETFs. It's just a way to gauge the market. But it does show how far we've come. In a time when the average active fund investor is paying 1% or more per year, plus loads, for sub-par performance, balanced exposure at 0.16% looks pretty good.
Be careful when making fruit-basket comparisons; you’re likely to come up with lemons.
Pimco is going back to what it does best—generating alpha through fixed-income exposure.
Understanding how to trade ETFs means understanding a number of crucial metrics.
A robotic focus on expense ratios costs more than you think.