ETF Asset Allocation Model


Last week, we briefly discussed how to build an ETF asset allocation within your portfolio. We also created a 2011Top ETF lists broken down in different asset classes. But knowing that you can build your portfolio with ETFs and knowing which ETFs are the biggest on the market does not ensure you are investing money correctly. Did you know that asset allocation is responsible for more than 90% of your portfolio return over a long period of time? This is why today I will display an ETF asset allocation model for growth investors.

ETF Asset Allocation Model Example

I believe that you don’t need many ETFs to build a solid portfolio. I also think that if you add more ETF, you are leaning toward diworsification instead of diversification ;-). The ETF asset allocation model I am presenting today is for aggressive investors. The purpose of such asset allocation is to generate growth overtime. This ETF model suits an investor perfectly if you are not afraid of market fluctuations and that you plan on investing over a long period of time (401(k) account for example).

SPY (US Market): 15%

EWC (CDN Market): 15%

EFA (Intl Market): 15%

EEM (Emerging Markets): 15%

VNQ (REITs): 20%

TIP (Bonds): 20%

Is the ETF Allocation Model That Simple?

This is actually the point; why should an ETF asset allocation model be complicated? ETFs were created to bring a new flexible opportunity for investors without having them pay high management fees. Now that the product has become so popular, you have too many choices. By sticking to the basics for your asset allocation (e.g. most influential stock markets + fixed income), you are sure to benefit from the markets without losing yourself in a 20 ETF portfolio.

This Allocation Model Should Be Considered Aggressive

As previously mentioned, this ETF asset allocation model is considered to be aggressive. Why? Because even if you are holding fixed income related investments (e.g. bonds and REITs), the problem is that you are not the shareowner of your fixed income. Therefore, ETF bonds and ETF REITs follow the market value of the underlying assets. You will earn interest or dividend income, but you are not the beneficiary of any guarantee. Since you have no guaranteed investment in this model, the portfolio should be considered aggressive.

The ETF Asset Allocation Model Should Be Combined With Bonds or CDs

If you prefer taking less risk in your portfolio, you can also combine this ETF asset allocation model and some government bonds or certificates of deposit. I know that the latter are far from being sexy investments as their interest rate are very low these days but it can bring some stability to your portfolio. In the event of an interest rate hike, your bond ETFs will drop as well as the value of the individual bonds in your portfolio. The difference is that you know that if you wait until maturity, your individual bonds will be paid completely without any capital loss.

Final thoughts on my ETF Asset Allocation Model

Do you like it? Do you think I have forgotten an asset class? What does your asset allocation look like at the moment?


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6 Feedbacks on "ETF Asset Allocation Model"

Eric Nadler

I’m just starting to take control of my finances and also am going to try to use moving averages to trigger buy and sell signals. I just moved over 10 401k and other accounts from various jobs so I can have them in one place and now I need to decide which funds to use!

I like your ETF breakout, but since you trading based on the trends why bother with TIP? And how about a more aggressive fund in addition to or instead of SPY? For example, VBK/IWO seem to have beaten SPY on all the charts I’ve looked at.

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ETF Asset Allocation Model | Experiments in Finance

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