Recently I was asked by a family member to help them review some investment advice they had received from a large investment brokerage on how to invest funds that had just been deposited into a Rollover IRA. I was amazed by the complexity of the suggested portfolio, primarily by the sheer number of funds that were suggested.
Although the recommended portfolio had what I viewed to be a reasonable allocation across domestic equity, foreign equity and bonds, as well as their allocation across market sectors, they had suggested over 20 funds to compose the portfolio. Quite possibly the saddest part about their recommendation was that approximately half of the funds which were suggested were closed to new investors and therefore represented completely worthless information to my relative.
In an attempt to help create a simpler portfolio, and an even lower cost one at that, I put together the following portfolio. To provide some context, the individual that I constructed this portfolio recommendation for is approximately 10 years away from retirement and has a relatively low risk tolerance.
The portfolio sought to follow the following asset allocation:
The portfolio sought to follow the following sector allocation:
|Equity Sector Allocation|
The portfolio I built for my recommendation included 7 total holdings:
3 holdings under domestic equity:
YAFFX - Yacktman Focused Fund - Focuses on large-cap, blue-chip stocks and seeks long-term capital appreciation with current income as a secondary goal
IVV - iShares Core S&P 500 - Indexes the performance of the S&P 500
DVY - iShares Select Dividend - Invests in relatively high paying dividend stocks, and falls under a mid-cap value style on the MorningStar StyleMap
2 holdings under foreign equity:
IXUS - iShares COre MSCI Total International Stock - Seeks to indexes the performance of large-, mid- and small-cap non-U.S. equities
IDV - iShares International Select Dividend - Invests in companies with relatively high dividend payments in non-U.S., developed markets.
2 holdings under bonds:
FTBFX - Fidelity Total Bond Fund - Seeks to generate a high level of current income
LQD - iShares iBoxx Dollar Investment Grade Corp. Bond Fund - Seeks a high level of current income through investment grade U.S. bonds
Portfolio Composition (Percentage Breakdown):
The goal of this portfolio was to maintain a relatively low risk profile and seek long-term capital appreciation, reinvesting all dividends and capital gains back into the holdings to increase their respective positions. In addition, in order to maintain or alter the sector allocation of the equity holdings, or change the portfolio's exposure to equities or bonds during any year, quarter, or other time frame, the portfolio ought to be adjusted at least on an annual basis.