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Ted Aronson is an asset manager. His family taxable account portfolio has been featured and tracked by's lazy portfolios, maintained by Paul Farrel. The lazy portfolio has done very well prior to 2008-2009 crash. In this article, we look at how to use ETF substitutes to form an asset allocation investment plan.

The portfolio consists of the following index funds and their ETF substitutes:

- 20% in Vanguard Emerging Markets Stock Index (VEIEX) --- ETF: VWO
- 15% in Vanguard 500 Index (VFINX) --- ETF: VOO
- 15% in Vanguard Pacific Stock Index (VPACX) -- ETF: VPL
- 10% in Vanguard Extended Market Index (VEXMX) -- ETF: VXF
- 10% in Vanguard Inflation-Protected Securities (VIPSX) -- ETF: TIP
- 5% in Vanguard European Stock Index (VEURX) --- ETF: VGK
- 5% in Vanguard High-Yield Corporate (VWEHX) --- ETF: JNK
- 5% in Vanguard Long-Term U.S. Treasury (VUSTX) -- ETF: VGLT
- 5% in Vanguard Small Cap Growth (VISGX) --- ETF: VBK
- 5% in Vanguard Small Cap Value Index (VISVX) --- ETF: VBR
- 5% in Vanguard Total Stock Market Index (VTSMX) --- ETF: VTI

Notably, the portfolio has allocations in emerging markets, high yield corporate bonds and long term US treasury bonds, all of which are on high risk spectrum. The long term treasury bond has proved to be a good diversifier in the recent history.

This plan consists of the above funds as its candidate funds. For the purpose of comparison, model portfolios in this plan should be compared with this lazy portfolio that rebalances annually.

The Aronson Family Taxable ETF Lazy Portfolio consists of 11 funds. These funds cover 4 major assets: US Equity, Foreign Equity, Emerging Market Equity, Fixed Income. A notable missing asset is Real Estate Investment Trusts (REITs) such as iShares Dow Jones REIT index (NYSEARCA:IYR):

Asset Class Ticker Name
MID-CAP BLEND VXF Vanguard Extended Market Index ETF
Inflation-Protected Bond TIP iShares Barclays TIPS Bond
EUROPE STOCK VGK Vanguard European ETF
High Yield Bond JNK SPDR Barclays Capital High Yield Bond
LONG GOVERNMENT VGLT Vanguard Long-Term Govt Bd Idx ETF
Small Growth VBK Vanguard Small Cap Growth ETF
SMALL VALUE VBR Vanguard Small Cap Value ETF
LARGE BLEND VTI Vanguard Total Stock Market ETF
Asset Class Number of funds
Balanced Fund 0
Fixed Income 3
Commodity 0
Foreign Equity 1
Emerging Market Equity 2
US Equity 5
Total 11

The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies. For comparison purpose, we also include the moderate model portfolios of a typical 4 asset SIB (Simpler Is Better) plan. This SIB plan has the following candidate index funds and their ETFs equivalent:

US Equity: SPY or VTI
Foreign Equity: EFA or VEU
Emerging Market Equity: EEM or VWO
Fixed Income: AGG or BND
Performance chart (as of Sep 12, 2011)

Performance table (as of Sep 12, 2011)

Portfolio Name 2011 YTD 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Aronson Family Taxable ETF Lazy Portfolio Tactical Asset Allocation Moderate -2.07% 2% 18% 5% 48% 7% 51%
Aronson Family Taxable ETF Lazy Portfolio Strategic Asset Allocation Moderate -5.68% 2% 12% 3% 17% 4% 16%
Four Core Asset ETF (NYSE:EM) Benchmark Tactical Asset Allocation Moderate -0.74% 5% 57% 6% 56% 9% 60%
Four Core Asset ETF (EM) Benchmark Strategic Asset Allocation Moderate -7.13% 1% 15% 4% 17% 4% 12%

YTD (2011 up to 9/12/2011), both tactical and strategic portfolios have outperformed their four core asset counterparts respectively. However, this plan lacks two major asset classes: REITs and commodities. Currently Commodities, International Bonds and Fixed Income are doing well. Only Fixed Income is available to Aronson Family Taxable ETF Lazy Portfolio participants.

Disclosure: We do not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Ted Aronson's Family Taxable Lazy Portfolio & Its Tactical Asset Allocation Version