This week I received a call asking for basic investment assistance. This blog post was written in response to that call. There are a few basic principles of investing and I’ve been writing about them on this blog for almost 18 years. Here is the link to two very basic principles.
Rule #1
There is no substitute for saving for your retirement. Start as early as possible.
The golden rule of investing
Rule #2
Everything you need to know about investing on a 3 x 5 card
And now some “fresh” material. If I haven’t mentioned it before, my advice is not to waste money on ‘professional’ management as you are very unlikely to add alpha to your portfolio.
Definition of Alpha: Portfolio alpha measures the risk-adjusted performance of a portfolio compared to a benchmark, and represents the excess return generated by an investment strategy. A positive alpha indicates that the portfolio outperformed its benchmark, while a negative alpha means it underperformed. Alpha is often used to evaluate a fund manager’s skills, showing whether the excess returns are due to his strategy or simply to taking higher risks.
Strategy #1: Build an intelligent portfolio with Schwab. The initial cost is approximately $3,000 to $5,000 to get started with such a portfolio. This minimum dollar amount may change from time to time, so please contact Schwab for information on the current minimum investment required to open an Intelligent Portfolio account. Follow the Schrodinger portfolio on this blog, because Schrodinger is an intelligent portfolio managed by Schwab computers. Use this portfolio’s asset allocation as a guide to setting up any portfolio you may want to manage. Find out how to access your account wherever it is, whether it’s Fidelity, Vanguard, Schwab, or another broker. Working with a particular broker does not limit the securities you can use to fill a portfolio.
Check your current holdings to ensure you are not investing in mutual funds. If you invest in such mutual funds, stop reinvesting dividends as it is important to reduce costs. Know the difference between tax funds and tax-free investment funds. I no longer use investment funds. Instead, I strictly buy and sell Exchange Traded Funds (ETFs).
Strategy #2: This is new material, even for this adult blog. Recently I experimented with ChatGPT and requested sample portfolios. Below is the ChatGPT recommendation for a portfolio consisting of ten (10) ETFs.
The following portfolio is quite similar to the composition of the Huygens portfolio that readers can follow on the ITA Wealth Management blog. Use the search engine to find the Huygens portfolio.
🧭 Example: balanced global portfolio (moderate risk)
| Asset class | ETF | Allocation | Description |
|---|---|---|---|
| US large cap stocks | VTI (Vanguard Total Stock Market ETF) | 25% | Broad exposure to US equities (large, mid, small caps). |
| US growth stocks | QQQ (Invesco Nasdaq-100 ETF) | 10% | Tech-heavy growth tilt. |
| American Dividend Stocks | SHHD (Schwab American Dividend Equity ETF) | 10% | High-quality dividend payers for income stability. |
| International developed markets | VXUS (Vanguard Total International Stock ETF) | 10% | Developed and emerging ex-US equities. |
| Emerging market stocks | img (iShares Core MSCI Emerging Markets ETF) | 5% | Diversification into faster growing regions. |
| US government bonds | IEF (iShares 7-10 year government bond ETF) | 10% | Medium-term Treasuries for stability. |
| US investment grade bonds | AGG (iShares Core US Total Bond ETF) | 10% | Broad exposure to fixed income securities. |
| Inflation-protected bonds | TIP (iShares TIPS Bond ETF) | 5% | Protects against inflation. |
| Real Estate (REITs) | 5NQ (Vanguard real estate ETF) | 10% | Diversified exposure to US real estate. |
| Resources / Gold | GLD (SPDR Gold shares) | 5% | Hedge against volatility and inflation. |
As an investor in or nearing retirement, a conservative asset allocation may be more appropriate. ChatGPT recommends the following asset allocation.
🧭 Conservative portfolio with 10 ETFs
| Asset class | ETF | Allocation | Description |
|---|---|---|---|
| US total market | VTI – Vanguard Total Stock Market ETF | 15% | Broad exposure to US equities for modest growth. |
| American Dividend Stocks | SHHD – Schwab US Dividend Equity ETF | 10% | High-quality dividend stocks, lower volatility. |
| International Developed Equities | VEA – Vanguard FTSE Developed Markets ETF | 5% | Diversification into developed foreign markets. |
| Emerging market stocks | img – iShares Core MSCI Emerging Markets ETF | 3% | Small allocation for long-term growth potential. |
| US Total Bonds | AGG – iShares Core US Aggregate Bond ETF | 25% | Broad exposure to investment grade bonds. |
| Intermediate government bonds | IEF – iShares 7-10 year government bond ETF | 15% | Core stability and flight-to-safety protection. |
| Short term government bonds | SHY – iShares 1-3 year government bond ETF | 10% | Low duration, minimal volatility, cash substitute. |
| Inflation-protected bonds | TIP – iShares TIPS Bond ETF | 7% | Inflation hedge, preserves real purchasing power. |
| Real Estate (REITs) | 5NQ – Vanguard Real Estate ETF | 5% | Income-generating real estate exposure. |
| Gold / Resources | GLD – SPDR Gold shares | 5% | Cover yourself against inflation and market shocks. |
Both portfolios will generate enough dividends to keep the portfolio in balance. I recommend rebalancing a portfolio at least four times a year or at the end of each quarter. Several of the aforementioned ETFs pay dividends four times a year, while others generate dividends every month. If dividends are not necessary for a living, use them to balance the portfolio.
I recommend using different portfolios as a way to further diversify around the world.
Comments and questions are always welcome. Post them in the comments section that comes with each blog post.
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