Expert: Steve Hach - 4/18/2008

Question
Re: Advice on Investment Portfolio

Hello,

after reading 9 books on investing I have created my first portfolio.

A little about me:
Age: 33
Annual income: 135K

Here is my portfolio plan:

Invest 10.8K/Year (2.7K/quarterly)

ETF’s w/ ETrade.com | Research on ETFconnect.com

U.S. (1/2)

Style | Symbol | Exp Ratio | Unit(s) | Portfolio %

(LG) Large Cap Growth | VUG | 0.11 | 1 | 4.17
(LB) Total Stock Mkt | VTI | 0.07 | 1 | 4.17
(LV) Large Cap Value | VTV | 0.11 | 2 | 8.33
(SG) Small Cap Growth | VBK | 0.12 | 1 | 4.17
(SB) Small Cap Blend | VB | 0.10 | 1 | 4.17
(SV) Small Cap Value | VBR | 0.12 | 6 | 25.0

United States Totals | 6 | 0.11 | 12 | 50%


INT (1/2)

Style | Symbol | Exp Ratio | Unit(s) | Portfolio %

(LB) Large Cap Blend | VWO (Em Mkts) | 0.30 | 1 | 4.17
(LB) Large Cap Blend | VGK (Europe) | 0.18 | 1 | 4.17
(LB) Large Cap Blend | VPL (Pacific) | 0.18 | 1 | 4.17
(LV) Large Cap Value | EFV | 0.40 | 2 | 8.33
(SG) Small Cap Growth | GWX | 0.60 | 1 | 4.17
(SV) Small Cap Value | DLS | 0.58 | 6 | 25.0

International Total Avg | 0.48 | 12 | 50%

Portfolio Total Avg | 0.30 | 24 | 100%


Please give me your input. Thank you!

Asad Raza
asad_raza5367@hotmail.com

Answer
Asad,

It seems to me that the 50/50 split with US and foreign equities may not be the best allocation.

It seems convenient, but I suspect that there should be more of a bias towards foreign markets--or vice versa.

I also wonder why you have no cash position?

Many managers are keeping large cash positions now due to market uncertainties.

It also seems to me that you should be saving substantially more based on your income.  

At least 10% of income and more if possible.  With 135k/annually you should be able to save way more unless you are burdened with debt.

If you have credit card or other high interest debt I would advise paying all debt off as soon as possible and before you begin to invest in the stock market.

I am also not sure if the bias towards small cap is the best strategy and I think you are duplicating efforts by allocating capital to small/large caps while at the same time purchasing what I assume are total market index funds.

And, I see no "hedge" in this proposed portfolio.  In market conditions such as these, I would expect some position in a reverse index ETF such as proshares Short S&P fund which would provide some security in case of continued market downturn.

At my firm, we are currently weighted 70/30 long/short and we advise clients unable directly short stocks to run a portion of their portfolio with a short index ETF.

It seems to me overall that you may have too many ETFs and that you may be able to reduce fees by concentrating your choices.

Best,

Steve