This weekend I wrote an article on a beginner's portfolio. One comment got me thinking: How well did this optimized portfolio perform over the last five years, the time frame I used for the article? I considered this to be a beginner's portfolio in the sense that it holds only 10 ETFs and it is not all that sophisticated or complicated. My personal preference is to hold more ETFs in an effort to increase the Diversification Metric.
QPP Analysis: The following 10 basic ETFs are assigned the percentages recommended by the optimizer used for the article. While it is highly unlikely one would have held the percentages constant as constituted in this example, this array of ETFs outperformed the S&P 500 over the past five years, but did it with higher volatility.
From the QPP analysis below, the projected portfolio, if not altered, is expected to outperform the S&P 500 by nearly 100 basis points over the next six to 12 months. However, the projected standard deviation is significantly higher than our goal of 15%. The Diversification Metric is well below our goal of 40%, another reason to seek ETFs that will bring additional diversification to this base 10 array of securities.
In a follow-up article, I will expand the basic 10 to as many as 20 ETFs. In addition to building a little more complex portfolio, look for improvements in the ITA Risk Reduction model. We will see how the "improvements" play out in the Maxwell, Euclid, Kenilworth, Madison, and Gauss portfolios.