1 Decision ETF Portfolio Update

I did a little research into Appel's ETF book; he DOES actually talk about 2 portfolios. He spends much of his book talking about a U.S. only portfolio; his main point is that emerging markets are much too volatile for investment. Of course, emerging markets are only a small part of international investment opportunity. In the last chapter or so of his book, he then abruptly changes course and talks about an ETF portfolio that includes international investment (though not emerging market investment).

His most rounded portfolio consists of 4 parts and requires research each month. The parts are:

1. 25% bonds (AGG)

2. 25% EFA (international, SPY (S&P 500) or cash. If SPY performance lags EFA by 15% or more, invest in EFA. Other wise, SPY UNLESS certain interest rate conditions are met. Then this 25% goes into cash.

3. Invest 25% in large caps (Russell 1000) or small caps (Russel 2000). In general, you use the one that outperformed the year before - his stats say this makes you right 70% of the time. You also do not use the straight index; you use the value or growth version of the index. If you see a) sharply rising commodity prices, b) a strong dollar, and c) accelerating economic growth, you choose the value version of the index. Otherwise, you choose the growth version of the index.

4. The last 25% goes into a real estate ETF, preferably ICF.

. As you can see, this isn't simple. Some of the calculations for step 2 are pretty interesting. I think a simpler portfolio might be composed of the AGG bond index, EFA for international exposure, IWB for the Russell 1000 (stick with large caps and ignore the value vs. growth question) and ICF for the REIT portion.