Scared? Rest Easy With This Portfolio
If the emails I've received from readers and the comments left on my blog are any indication, a lot of folks are pretty unnerved by the stock market's recent decline.
So I've constructed a portfolio of exchange-traded funds and mutual funds with returns that have a low correlation to the S&P 500. In fact, this is almost a lazy man's portfolio: The only thing you need to monitor is whether any new products are introduced that will turn out to be better mousetraps.
The benefit of this sort of approach is that you have a good chance of being down less in a bad market. But you will likely be up less the next time the market is up 25% in a year.
PowerShares S&P 500 Buy Write Portfolio (PBP), 30% allocation.PBP is a proxy for U.S. exposure. It is a new fund that benchmarks to the CBOE Buy Write Index. As you can see from the two-year chart comparing it with the S&P 500, the Buy-Write index feels the ups and downs but does so with reliably less volatility. Over the last 10 years, it has had about 73% of the volatility. So PBP should track the Buy-Write index and also offer some yield (the dividend will be composed of dividends from the 500 stocks in S&P plus the call premium. You can read more about the fund here. Wisdom Tree Pacific Ex-Japan High Yielding Equity Fund (DNH), 20% allocation. DNH is mostly invested in Australia and New Zealand. It is not necessarily a low-beta fund, but Australia offers excellent diversification because as a commodity-based country it is usually at a different point in its economic cycle than the U.S.
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