Recession ETF Investing Ideas for the Gun-Shy

Right off the broken bat, I am reminding readers that I do not buy-n-hold. Diversifying across asset classes didn't help in the crash of 2008, but stop-loss selling did. And that's what I do.

Nevertheless, I am often asked to give examples of model 401k portfolios. Or, I might have a target allocation for a risk tolerance classification (e.g., conservative, etc.), where stop-loss protection is still placed on the individual positions.

Here at the heart of a recession, one whose duration is entirely unpredictable, I've put together an ETF approach for gun-shy investors; that is, here is a way to tap currencies, commodities, stocks and bonds, while still keeping your shirt and shoes.

Okay then, Gary. We've read your disclaimer(s). Now... what are the darn ETFs:

Equal-Weighted ETF Portfolio			Category		1/1-10/31
iShares Russell 3000 (IWV)			Large Growth		-33%
Berkshire Hathaway (BRK.B)			Large Value		-19%
Eaton Vance Eq Income (ETJ)			Equity Income		0%
iShares Japan (EWJ)			Foreign Developed		-32%
iShares Preferred Index (PFF)			Preferred		-25%
iShares Investment Grade (LQD)			Corporate Bond		-20%
iShares 1-3 Year Treasury (SHY)			Treasury Bond		3.80%
Rydex Swiss Franc Trust (FXF)			World Currency		-2.50%
Dow Total Commodity Ind (DJP)			Commodity		-28%
SPDR International Treas (BWX)			Foreign Bond		-6.50%
Total					-16%

Considering just how horrific 2008 has been, the portfolio's return in the first 10 months outperforms most asset allocation models. More importantly, the potential for the assets going forward is genuinely appealing.

From a risk perspective, the only asset with a higher beta than the S&P 500 is the iShares Russell 3000 (IWV) with a beta of 1.02. The average beta might be closer to .50, which makes the portfolio about 1/2 as volatile as the market at large.

From a dividend/interest/yield perspective, the projected amount is approximately 3.7%. That's about as good as a 10-year Treasury note, with a heck of a lot more potential for capital appreciation.

And why shouldn't there be cap app? After an epic commodity bust that probably overshot on the downside, might we get a little bit of demand for "stuff?" Might we expect iShares Japan (EWJ) that had recently traded as low as book value to do better in 2009? And in a year following a down year for Warren Buffett's holding company Berkshire... the results are uniformly positive.

Although it is only a hunch, I would expect this ETF grouping to make back all that it lost in the first 10 months of 2008 by late summer of 2009. And that's regardless of the headlines.

But again, even when my hunches are wrong, and they're wrong plenty of times, I use stop-losses. There's nothing more elementary than the "Wisdom of Avoiding the Big Loss."

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.