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How Diversified ETF Portfolios can Make You Feel Like a Loser

NEW YORK (ETF Expert) -- Financial professionals often talk about the importance of diversifying across the asset classes. Had you chosen to do so in 2013, however, you may be feeling less giddy than the "Holy Cow, Look at the Dow" cheerleaders on CNBC.

ETFs For 14 Asset Classes         2013 YTD Approx %
Large Cap US: SPDR S&P 500 Trust (SPY)       31.9%
Mid Cap US: SPDR MidCap (MDY)       33.1%
Small Cap US: iShares Russell 2000 (IWM)       34.0%
Large Cap Foreign: iShares MSCI EAFE (EFA)     21.7%
Small Cap Foreign: iShares Small Cap EAFE (SCZ)     29.0%
Emerging Markets: Vanguard Emerging (VWO)     -5.5%
Real Estate: Vanguard REITs (VNQ)       3.0%
Commodities: PowerShares DB Commodities (DBC)     -7.6%
Preferred Stock: iShares Preferred (PFF)       -1.1%
Investment Grade US Bond: iShares US Aggegate (AGG)   -2.0%
High Yield US Bond: SPDR Barclay High Yield (JNK)     5.7%
Foreign Bond: SPD Barclays Int'l Corp (IBND)     2.6%
Emerging Market Bond: Market Vectors EM Local (EMLC)   -10.2%
Precious Metals: PowerShares DB Precious Metals (DBP)   -31.1%
Equal Weight           7.4%

Granted, as Americans we tend to be far more ethnocentric in our investing endeavors; we are exceptionally unlikely to invest as many of our dollars in  foreign stocks as we are domestic stocks. Similarly, few among us tend to place as much faith in commodities or emerging market bonds as we do mainstream stock assets and mainstream bond assets.

We can imagine a portfolio that accounts for a bias toward the United States as well as a lighter emphasis on non-traditional assets. Even here, the sting of perceived "underperformance" may be difficult for some folks to shake.

ETFs Allocation 2013 Approx %   Adjusted    
SPY 20%   31.9%   638    
MDY 10%   33.1%   331    
IWM 10%   34%   340    
EFA 10%   21.7%   217    
SCZ 5%   29%   145    
VWO 5%   -5.5%   -27.5    
VNQ 2%   3%   6    
DBC 2%   -7.6%   -15.2    
PFF 2%   -1.1%   -2.2    
AGG 15%   -2%   -30    
JNK 10%   5.7%   57    
IBND 5%   2.6%   13    
EMLC 2%   -10.2%   -20.4    
DBP 2%   -31.1%   -62.2    
Hypothetical Diversified Portfolio         15.9%

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