Money Go Fishing By David John Marotta
AKE THE BITE OUT OF INVESTING with a “gone-fi shing” strategy. A gone-fi shing portfolio uti-
lizes just a few stocks that should weather the ups and downs of the market. In our gone-fi shing port- folios, we suggest investing more overseas than in the United States. For most investors, foreign stocks will be their largest and most impor- tant allocation. Including the right mix of foreign stocks will help you relax and go fi shing no matter what foreign seas are in turmoil. Creating a gone-fi shing portfolio begins with a top-level asset alloca- tion. We generally recommend that the largest allocations consist of for- eign stocks. For a typical 40-year-old investor, the percentage in overseas investments would be 36.2 percent. The gone-fi shing philosophy sug- gests as few funds as possible to capture the lion’s share of market returns. It also recommends using only funds with low fees and expens- es and a large number of holdings to track the index. Although additional holdings might boost returns, the primary goal is simplicity. For foreign stocks, the fi rst selec- tion should be Vanguard MSCI EAFE ETF (VEA). It uses a passive man- aged sampling methodology to track
David John Marotta is president of Marotta Wealth Management Inc. of Charlottesville, Va.,
www.emarotta.com
om 100 NEWSMAX MAXLIFE / SEPTEMBER 2011
Overseas T
Create a simple, effective “gone-fi shing” portfolio with these three foreign funds.
the MSCI EAFE index. EAFE stands for Europe, Australia, and the Far East and it includes every devel- oped country outside of the United States and Canada. VEA has a low expense ratio of 0.12 percent and includes more than 1,000 stocks from more than 20 developed markets.
The annual return for the EAFE index over the past 10 years has been 5.35 percent through May 2011 compared to the S&P 500’s 2.64 percent. The second addition to your for- eign stock holdings should be the Vanguard Emerging Markets ETF (VWO). Its expense ratio is also low at 0.22 percent, and it includes more than 800 holdings in China, Brazil, South Korea, Taiwan, Russia, India, Mexico, and other countries. The Emerging Market index has performed exceptionally well. In the past 12 months, it had a 30.41 percent return. And over the past decade it had an annual return of 16.1 percent. If these are your only two hold- ings, we recommend putting two- thirds in VEA and one-third in VWO. So if your foreign stock allocation is 36.2 percent, you would put 24.1 per- cent of your total assets in VEA and 12.1 percent in VWO. Investing only in these
two funds ignores Canada, a major developed country. It also enjoys high economic
freedom and a lower debt and defi cit. So the next holding to add would be the iShares MSCI Canada Index Fund (EWC). The expense ratio is still a relatively low 0.53 percent. Putting perhaps 10 percent of your foreign stock allocation in EWC would leave 60 percent for VEA and 30 percent for VWO. With this allo- cation, you would have every devel- oped and emerging market country outside of the United States. Adding additional holdings serves only to overweight specifi c styles, sectors, or countries that you expect to outperform the EAFE index at the expense of increased complexity. The purpose of a gone-fi shing port- folio is to set an uncomplicated allo- cation for each asset class so you have time to visit some of these countries and enjoy the fi shing. Remember, this is just about deciding on the portion allocated to foreign stocks. Set your foreign stock allocation and be sure to rebalance each year.
ILLUSTRATION/CHUAN KHOO/PHOTODISC/GETTY IMAGES
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