Which ETFs are recommended when constructing a new portfolio? The first move is to decide which asset classes to include in the portfolio. The ten (10) ETFs used to populate the Rutherford portfolio simplifies the choices while providing great diversity. These 10 ETFs are not highly correlated, another advantage of this list. There is the 11th ETF, SHY, our cutoff security.
In addition to U.S. Equities (VTI) there are other important asset classes to include for possible investments and they are: Cash (SHY or money market), Domestic Bonds (BND, BIV, TLT, TIP, etc.), Developed International Markets (VEA), Emerging Markets (VWO), U.S. REITs (VNQ), International REITs (RWX), International Bonds (BWX or PCY), Commodities (DBC), and Precious Metals or gold (GLD). While these are the primary ETFs used to calculate the ITA Index benchmark, I hold other ETFs in different portfolios as well as a few individual stocks. For example, I don’t limit bonds to just BND or TLT. Other bond and income ETFs include BSV, BIV, AGG, JNK, LQD, HYG, TLT, TIP, and SHY.
As stated many times on this blog, the second decision of what percentage to allocate to each asset class is the most difficult decision facing investors. This applies to investors who are following the Strategic Asset Allocation plan or the model implemented with the Schrodinger, Copernicus, and Pasteur portfolios.
Active investors using the momentum model are not faced with this asset allocation – percentage decision. Momentum investors will likely use either the Dual Momentum Model or the Tranche Momentum Model. This does require the latest version of the Kipling spreadsheet.