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Is Your Portfolio Ready for the Long Haul?

15 February 2013 in Trading Ideas

Choosing the right asset allocation is a challenge for any investor. Depending on your appetite for risk, the best asset mix for you could involve any combination of domestic and foreign equities, short- and long-term bonds, precious metals, or real estate.

Over the years, the investing world has come up with countless asset-allocation strategies. Four of the more popular strategies are the basis for a new set of ETF-based motifs, each of which seeks to provide a balanced portfolio aimed at steady long-term returns.

  • Target Date motifs – Planning for retirement can seem complicated and overwhelming. Target Date motifs aim to simplify retirement investing – when you invest in a Target Date motif, you invest in a portfolio of ETFs designed to keep asset allocations on track, no matter what your age. Here’s how it works: One of the new Target Date motifs, Retiring 2055, is designed for an investor looking to retire in – you guessed it – 2055. This motif currently contains 65% total weighting in ETFs focused on domestic and foreign equities. But that exposure to equity ETFs will decline with each yearly rebalance, and by 2055, the target for ETFs with domestic and foreign equities will be close to 30%. In contrast, the percentage of U.S. bond ETFs in this motif increases over the same period, from less than 10% currently, to roughly 40% by 2055. Eight Target Date motifs are available, one for every fifth year between 2020 and 2055.
  • “Permanent Strategy” – This motif is based on strategies developed in the 1970s by investor and author Harry Browne. The approach is extremely simple: Just invest precisely equal amounts in four different asset classes: Treasury bills, long-term bonds, equities and gold. Browne’s belief was that at least one part of the portfolio would be doing well at any given time, regardless of the state of the economy. For example, in a recession, the portfolio might be protected by its Treasury-bill and long-term-bond allocations, both of which tend to do well during economic downturns.
  • “Ivy League” is patterned after the approach of David Swensen, whose success in managing Yale University’s multi-billion dollar endowment fund brought him to the attention of the larger investing world. Swensen described his success at Yale in his popular book, “Unconventional Success: A Fundamental Approach to Personal Investment.” The Ivy League motif seeks to follow a similar model. The biggest single allocation in Ivy League is the 31.2% in ETFs for U.S. equities. ETFs investing in real estate investment trusts (REITs) and international equities each comprise roughly 20% of the portfolio.
  • “Index Fans” is inspired by the philosophies of index-fund pioneer Jack Bogle. Bogle made famous his criticism of the effort to “beat” the market through actively managed portfolios and favored instead the use of low-cost index funds to track the market’s movements over the long haul. This motif generally follows that premise – it contains a portfolio of ETFs designed to track the performance of broad indexes across several asset classes, including US stocks and bonds, international equities and precious metals.

Each of these new motifs is designed to make asset allocation simple, easy and intuitive. Learn more about these motifs here.

The Exchange Traded Funds prospectus contains its investment objectives, risks, charges, expenses and other important information you should read and consider carefully prior to making an investment decision. Please review the current prospectus, available from the Prospectus link.

ETFs have unique features that you should be aware of, which can include distribution of any gains, risks related to securities within the portfolio, tax consequences, and fees and expenses. The data quoted herein represents past performance and is not indicative of future results. The investment return and principal value of an investment will fluctuate so that your investment, when redeemed, may be worth more or less than their original value. Current performance may be lower or higher than the performance data provided. Please review the prospectus or other research tools provided on this site for more recent performance information.

Target date motifs may not be designed exclusively for retirement and should not be considered a complete investment program. Investment objectives and strategies of a motif may change over time and there may be adjustments among asset classes as the target date approaches. The principal value of a target date motif will fluctuate and is not guaranteed at any time, including at the target date.

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