If simplicity of portfolio management is your goal, this blog post should provide some direction. The following information speaks primarily to the Linear Regression Projection-Convolution (LRPC) and Dual Momentum (DM) models. First, I’ll select the LRPC example as if it were located with TDAmeritrade. Here is an example portfolio.
While the following portfolio includes 20 securities plus SHY, if one wished to cut the number to the bone, these are my picks.
- SPTM – U.S. Equities. Another option is to use VTI from Vanguard.
- VEA – Developed International Equities. I am still using VEA as the SPDR Int’l Equities does not have sufficient historical data.
- SPEM – Emerging Market Equities with another option – VWO.
- SPAB- Aggregate Bonds. One can also use BND or AGG.
The above four are my core asset classes. If I built the portfolio using only one or two of the four ETFs, I’d be satisfied and end up with a well-diversified account. Personally, I include more securities as I want possible exposure to Real Estate, Treasuries, Commodities, etc. Consider them as extras.
If one is using the Dual Momentum model, the Millikan (hosted at Schwab) provides a similar core of a few asset classes.
Once one has covered U.S. and International Equities, plus a few bond or treasury ETFs for times when equities are in decline, there is little more one needs to include in the investment quiver. When reviewing a LRPC portfolio I’ll screen the Vanguard sectors for possible inclusion. That is why VCR and VGT are included in the above list.
I can make arguments for including each of the other securities, but they are personal choices and lie outside the core asset classes.
If four ETFs seems too few, follow the Rutherford portfolio where HedgeHunter is using ten (10) ETFs plus SHY. One of the features I like about the Rutherford management model is that the portfolio is broken into five portfolios in an effort to minimize the luck-of-review-day.
There is nothing wrong when it comes to keep the portfolio management as simple as possible.