Female American Goldfinch fighting over food location.
For a retiree, the portfolio should focus on four objectives:
- Capital preservation during market declines
- Reliable income
- Inflation protection
- Long-term growth to maintain purchasing power
A portfolio that is too stock-heavy can suffer large drawdowns during recessions, while one that is too bond-heavy may struggle against inflation. The following allocation attempts to balance those risks.
Retiree Recession-Resistant ETF Portfolio
| ETF | Allocation | Purpose |
|---|---|---|
| Vanguard Total Stock Market ETF (VTI) | 15% | Core U.S. equities |
| Vanguard Dividend Appreciation ETF (VIG) | 8% | Dividend growth |
| Schwab U.S. Dividend Equity ETF (SCHD) | 10% | Income and quality |
| Consumer Staples Select Sector SPDR Fund (XLP) | 5% | Defensive stocks |
| Health Care Select Sector SPDR Fund (XLV) | 5% | Defensive stocks |
| Vanguard FTSE Developed Markets ETF (VEA) | 5% | International diversification |
| Schwab U.S. Aggregate Bond ETF (SCHZ) | 10% | Core bonds |
| Vanguard Intermediate-Term Treasury ETF (VGIT) | 10% | Treasury protection |
| iShares 20+ Year Treasury Bond ETF (TLT) | 5% | Recession hedge |
| Schwab U.S. TIPS ETF (SCHP) | 10% | Inflation protection |
| SPDR Gold MiniShares Trust (GLDM) | 7% | Monetary hedge |
| Vanguard Real Estate ETF (VNQ) | 5% | Real assets |
| JPMorgan Equity Premium Income ETF (JEPI) | 3% | Enhanced income |
| JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) | 2% | Income with growth |
| Invesco S&P 500 Low Volatility ETF (SPLV) | 5% | Reduced volatility |
Total Allocation: 100%
Portfolio Structure
Equities (53%)
- VTI
- VIG
- SCHD
- VEA
- XLP
- XLV
- SPLV
These holdings emphasize quality companies, dividend growth, and defensive sectors that have historically declined less during recessions.
Fixed Income (35%)
- SCHZ
- VGIT
- TLT
- SCHP
A larger bond allocation than many portfolios helps cushion market corrections. Treasuries often perform well when investors seek safety.
Inflation & Hard Assets (12%)
- GLDM
- VNQ
Gold and real estate provide diversification and can help preserve purchasing power during periods of inflation or financial repression.
Income Enhancement (5%)
- JEPI
- JEPQ
These ETFs generate additional income through option strategies, helping retirees reduce portfolio withdrawals from principal.
Expected Yield and Risk
This portfolio would typically be expected to:
- Generate a moderate income stream.
- Experience substantially smaller drawdowns than a 100% stock portfolio.
- Hold up reasonably well in both inflationary and deflationary recessions.
- Maintain enough equity exposure to support long-term growth.
A severe recession might still produce a temporary decline in the 10%–20% range, but historically a diversified mix of Treasuries, TIPS, gold, and defensive equities has tended to decline far less than the broad stock market. For a retiree taking withdrawals, that reduction in volatility can be as important as maximizing returns.
Bethe Security Holdings
While the security holdings within the Bethe portfolio do not match the ChatGPT asset allocation, there are many similarities. One difference is that I tend to hold Vanguard sector ETFs while Chat recommends iShares sector ETFs.
Bethe Rebalancing Recommendations
With the market this high I am not strictly following the rebalancing recommendations. Instead, I continue to hold SCHO or short-term treasuries as I wait for better buying opportunities.
Bethe Performance Data
Since 12/31/2021 the Bethe continues to lag the AOR benchmark. I don’t anticipate the gap closing until we see a major market correction.
Bethe Risk Ratios
The Jensen Alpha slope is essentially flat. There is slight improvement over the past year in all risk ratios with exception of the Information Ratio.
At some point I will run an analysis on how well the Bethe is performing using the recent asset allocation revision.
Discover more from ITA Wealth Management
Subscribe to get the latest posts sent to your email.
Leave a Comment or Question