Updating the Galileo will require little more than minor tweaking as there is very little cash available to maneuver among the asset classes. One change I would like to make is to sell off shares of VYM (Large-Cap Value), but to do so would incur a short-term trading fee of $19.99. I managed to foul up yesterday with the Bohr as I did not check on trades over the last month. There are times when a limit order is struck after a portfolio review, and if one does not go into the account and check on transaction activity it is possible to miss something. It is galling when this happens, so be careful. Do NOT sell a commission free ETF within 30 days of purchase!
Galileo Dashboard: For an investor beginning a new portfolio, the following asset allocation plan is a good start. This Strategic Asset Allocation (SAA) plan is not that far off what is currently recommended by David Swensen. Within the Galileo the allocation to U.S. Equities is 35% or 5% more than recommended by Swensen. He recommends more in treasury and bond instruments compared to the 19% allocated in the Galileo. Call it 20% if we include the 1% Cash allocation. Note that zero percent is assigned to Precious Metals. If gold (GLD) is purchased, I just classify it as a commodity.
One change you might consider is to move the 10% allocated to Developed International Markets up to 15% and reduce the 10% allocated to Emerging Markets down to 5%. That shift in allocation would “conservatize” the portfolio. For the owner of this portfolio, the following SAA plan is reasonable and one might call it “middle-of-the-road.”
ETF Rankings: In order to cram all the information into one screen shot I needed to reduce the size. I hope it is readable. What I show in this table is all the ETFs normally used to populate the Galileo plus the better funds isolated from cluster analysis of the 100 ETFs used as possible investments for the Hawking Portfolio. This is essentially the “Best of the Best” I posted late yesterday. It is a bit surprising to see Warren Buffett’s Berkshire Hathaway (BRK-B) end up at the bottom of the list. Down near the bottom is our familiar VWO or Emerging Markets. Keeping VWO company are two dividend ETFs, VYM and IDV. Now you see why I want to sell VYM.
Even though most of the ETFs are outperforming SHY, the market for most securities is essentially flat. To pick up this information, check the far right-hand column and examine the absolute acceleration percentages. Those are not particularly encouraging values.
Buy-Sell-Hold Recommendations: What do we do with this information. Rather than turn the portfolio upside-down and totally rework the portfolio, I’m only going to make changes around the edges. As of yesterday, the Internal Rate of Return (IRR) of the portfolio was very close to the IRR of the ITA Index benchmark. Further, the portfolio is gaining on this index compared to where it was six weeks ago. The same can be said for the VTSMX benchmark.
While writing this I sold 10 shares of VBK in order to bring Small-Cap Growth closer to target and I added 20 shares of VNQ. Not only is U.S. REITs below target, but VNQ is one of the few ETFs with a positive absolute acceleration. There is one very small limit order in place to pick up three (3) shares of BND and that will just about use up the available cash. The Galileo will now go into semi-neglect mode for another 33 days. The only change I expect to make is to sell off shares of VYM once my last purchase clears the 30-day limit. Of course this also depends on where VYM is positioned with respect to SHY.