Much is made of the importance of asset allocation here at ITA Wealth Management. Long-time readers are familiar with the general layout of the portfolios and new readers will find more information by doing a search for “Dashboard.” Not all portfolios tracked on this blog use the seventeen asset allocation classes, but we want to list the stable of assets we draw upon depending on the size of the portfolio and goals of the investor. Cash is included as one of the 17 in the data table shown below. There are actually a few more than 17 asset classes in the following table as I split out Dividends even though we fit those ETFs into other asset classes when actually managing a portfolio. For example, IDV goes into the Developed International asset class and VIG becomes Large-Cap Blend.
Below the title row we have the three cap sizes ranging from large to small and value through growth. Those nine asset classes we refer to as the “Big Nine.” If we eliminate the Blend column we end up with the “Big Six.” I no longer use VO and VB since the other mid- and small-cap asset classes are highly correlated. Some investors may want to tilt the portfolio toward value and one option is to replace VOT with VO and VBK with VB. There is nothing wrong with making this shift toward value. Holding VO and VB still provides some exposure to companies classified as growth companies.
The reason for including VTI instead of VV in Large-Cap Blend is that for some reason, TDAmeritrade still applies a commission charge to VV whereas VTI is commission free. Yes, I realize VTI holds stocks found in all the “Big Nine” U.S. Equity asset classes, but the majority of stocks fit the Large-Cap Blend asset class.
The ETFs coded with the olive green background are my preferred securities. VSS and SCZ are actually small-cap international ETFs, and including them in emerging markets is not completely accurate. Since they include obscure companies I decided to place them in the emerging market asset class.
The ETFs found in the various boxes represent basic holdings and we might substitute iShares or ETFs from other companies. One reason for sticking with Vanguard is cost as most of these ETFs have low expense ratios.
When we move into Commodities, International REITs, etc., we find we need to branch outside the Vanguard family to find ETFs to cover those asset classes.
If you are just starting a portfolio, I highly recommend you purchase a few shares of each of the above ETFs (olive green coded) so you have the means to eventually develop a customized benchmark such as the ITA Index for your portfolio. Stick with commission free ETFs where possible. For example, I will not buy GLD until it is performing above SHY (remember our cutoff ETF) and I am able to add sufficient shares to keep commissions to something below 0.5% of the purchase cost.