McCall’s Call: ‘Set And Forget’ With ETFs

December 08, 2010

With the holidays nearing, it may be time for a set-it-and-forget-it ETF allocation plan.

 

As investors prepare for and start enjoying the holidays, the time they spend on managing their investment portfolios is likely to fall. This lull in focus can extend well into the New Year and, if their portfolios aren’t properly allocated, overall performance of the investments could suffer.

Matthew D. McCallThat’s why I decided to build an all-ETF portfolio that can be the lazy man’s alternative to either getting completely out of the market or letting a basket of stocks and ETFs bounce up and down for months.

The key to building a portfolio that won’t shift as the market landscape changes is diversification. Having all your eggs in one basket runs the risk of that specific asset class falling, as others rise. The risk-reward balance for a concentrated portfolio also isn’t good because the increased reward doesn’t outweigh the rise in risk.

Another key to the lazy man’s portfolio is hewing to major investment themes. For example, over the next six months, I feel stocks will continue to rise based on several bullish factors, and therefore I’ll look for exposure to equity ETFs. Another theme will be the rise in commodities and fall of the dollar. Again, the portfolio can be positioned to take advantage of this major theme.

To keep it clean and simple, I’ve designed a portfolio of 10 ETFs that I think cover the major investment themes over the next six months and, at the same time, will create enough diversity to mitigate risk.

Broken down by asset classes, here are the ETFs:

Equities

  • SPDR S&P Dividend ETF (NYSEArca: SDY) – The ETF is composed of the 50 highest-dividend-yielding stocks in the S&P 1500 Index. Its current yield is 3.28 percent, and the expense ratio is 0.35 percent.
  • Guggenheim Frontier Markets ETF (NYSEArca: FRN) – The ETF gives exposure to off-the-beaten path countries such as Chile, Colombia, Egypt, Argentina and Poland. Its 42 stocks are heavily weighted toward the financial and energy sectors. The expense ratio is 0.65 percent.
  • WisdomTree Emerging Markets Equity Income ETF (NYSEArca: DEM) – Stocks that fall into the top 30 percent based on dividend yields within the WisdomTree Emerging Markets Index are included in the ETF. It has a current yield of 4.5 percent and an expense ratio of 0.63 percent.
  • SPDR S&P Midcap 400 ETF (NYSEArca: MDY) – Tracks the S&P Midcap 400 Index with an expense ratio of 0.25 percent. The asset class has beaten its peers over the last few years, and I feel this trend will continue.

 

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