ETFs for 'Lazy' Fixed Allocation Portfolio

I wrote about new "ETFs of ETFs" from iShares last week. As I mentioned, people may have less interest in the market these days, but they still need to save, and grow, money for long-term financial success.

As a follow-up, here's how to use the iShares fixed allocation funds in a lazy portfolio of sorts.

The iShares S&P Aggressive Allocation Fund(AOA Quote) targets 91% equities and 9% fixed income. The proportion is fixed, as opposed to a target date fund that will move more and more to fixed income over time. AOA targets the S&P 500 at 32.9%, S&P Mid Cap 400 at 22%, S&P Small Cap 600 at 8%, MSCI EAFE at 20%, MSCI Emerging Markets at 8.1%, Lehman Aggregate Bond at 5% and Lehman TIPS Bond at 4%.

That mix makes AOA a decent proxy for equities, but AOA is not sufficient as a portfolio solution by itself. People need to determine their own suitable asset mix, but an investor with 15 or more years until retirement could start out with the following:

• iShares S&P Aggressive Allocation Fund(AOA Quote): 65%
• ELEMENTS Rogers International Commodity Index Total Return(RJI Quote): 5%
• Nakoma Absolute Return Fund(NARFX Quote): 10%
• iShares Lehman TIPS Bond Fund(TIP Quote): 15%
• PIMCO Developing Local Markets(PLMIX Quote): 5%

The five products above are simply an effort to capture a diversified portfolio by including asset classes that, one way or another, are missing from the iShares fixed allocation funds.

RJI provides broad commodity exposure. I prefer it to similar funds for its breadth of commodities. RJI is down 35% year to date and 50% from its peak. This year has been rough on commodities, and RJI can't escape that. When commodities turn up, RJI will as well.

< Previous

1 2

Next >