For beginner investors interested to DIY long-only portfolios using ETFs, OptimizedPortfolio is a comprehensive, well-documented site to get started.
Benefits
- Free.
- A comprehensive list of 51 easy, invest-and-forget portfolios.
- Spotlight on Thematic ETFs, Leverage, Dividends, and Bonds portfolios.
- Responsive author and active commenters.
Things to keep in mind
- No short selling: The portfolios are long only.
- U.S. focused: For investors outside the U.S., be sure to verify your country’s tax treatment and consider a brokerage such as Interactive Brokers.
As always, please read the Alphalytics disclaimer: This blog is for educational purposes; investments involve risks; and we are neither liable nor responsible for your actions.
OptimizedPortfolio is a good starting point to understand how seasoned, DIY investors approach simple, effective portfolio construction using low-cost ETFs. To the author’s credit, he documents his thinking and attempts to replicate brand-name portfolios: Ray Dalio, Warren Buffett, and David Swensen. (Emphasis on best-effort replication, not duplication. There can only be one Dalio, Buffett, and Swensen.)
These long-only portfolios are typically buy-and-hold. i.e. They are boring – far from the thrill of staking Tesla or cryptocurrency – but effective. One can easily get started with a minimum investment size of USD5,000. Plus, equipping yourself with a DIY portfolio means that you have effectively done the job of a robo advisor – a savings of 0.2% to 0.8% in annual fees.
Notice the author’s use of Portfolio Visualizer (PV) which is a free, excellent tool for backtesting. When building your portfolio in PV, the key metrics to reference include CAGR, Worst Year, Max. Drawdown, and year-on-year performance.
Source: Sample Portfolio Visualizer simulations from OptimizedPortfolio
In addition, pay attention to how your simulated portfolio in PV performs during times of market stress and crisis: 2008 (GFC), 2011 (U.S. credit rating downgrade), 2015 (China stock market crash), 2018 (U.S. market correction), and 2020 (Covid crisis).
Portfolio construction challenge: Try adding Ark Invest ETFs to your sample portfolios and attempt to reduce/improve the drawdown. i.e. Aim to outperform Cathie Wood across select metrics. Keep in mind that Ark ETFs are largely equities only.
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Email hello @ alphalyticscm dot com for more about our investment strategies: (i) High performance targeting 25% CAGR and (ii) All Weather targeting better performance than equities with similar stability as bonds.