ETF Asset Allocation I


This ETF portfolio started with $10,000 on December 31, 2010. It provides asset class diversification using 14 ETFs (8 Vanguard and 4 non-Vanguard ETFs). The portfolio includes US and foreign equities; large, medium, and small capitalization stocks; and both U.S. and international REIT ETFs. The portfolio has a slight value tilt.

Under Vanguard’s new ETF pricing, the total cost for setting up this portfolio would be $28, (4x$7) in commissions for the non-Vangaurd IRAs, and an annual brokerage account fee of $20. Use of ETFs allows broad diversification with a relatively small amount of money. Most index mutual funds have a $3,000 minimum requirement.

Link to spreadsheet at Google Docs.

U.S. Equity Component. Here is how the asset allocation breaks down by size and style (growth, neutral, and value) for the US equity component. The market capitalization is: large cap 33%, mid-cap 33%, and small cap 33%. The style weightings: value 41%, neutral or blend 36%, and growth 22%. Thus, the U.S. equity component leans toward value with weighting equally distributed between market caps.

International Component. The international stocks include: large cap 45%, mid-cap 35%, and small cap 20%. The styles are: value 41%, neutral or blend 32%, and growth 27%. This gives the the U.S. equity component a value tilt. The international component tilts toward large-cap value.

Morningstar X-ray shows the geographic coverage of the international component as: U.S. & Canada 4.89%, Europe 18.08%, Japan 5.13%, Latin America 9.03%, and Asia & Australia 53.3%

Note: Morningstar X-ray data is from Janaury 2011.

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