ETF Alternatives For Solin's 'Smartest Portfolio'

by: Lowell Herr

What are the alternatives one might use to those suggested by Solin in his recent book, The Smartest Portfolio You'll Ever Own? The reasons for seeking alternative investments are two fold.

  1. We seek ETFs that have historical records of at least three years. This is so we can run Quantext Portfolio Analysis (QPP) on the portfolios.
  2. When possible, we prefer to use ETFs that are in the commission-free stable of TDAmeritrade options. This is to reduce expenses, particularly when it comes to rebalancing events.

Below are the nine investments recommended by Solin. The sub-tabs are my suggested replacements. For example, replace VLCAX with VTI and VVIAX with VOE or VTV. My preference is to use VOE for the stated reasons given below.

  • Vanguard Large Cap Index Admiral Fund (VLCAX)
    • Vanguard Total Stock Market ETF (NYSEARCA:VTI)
  • Vanguard Value Index Admiral Fund (VVIAX)
    • Vanguard Mid-Cap Value ETF (NYSEARCA:VOE) Another option is VTV. VOE pushes the portfolio toward smaller cap stocks.
  • Vanguard Small Cap Value ETF (NYSEARCA:VBR) This is one ETF we want to keep in the portfolio so there is no alternative.
  • Vanguard REIT Index Admiral Fund (VGSLX)
    • Vanguard REIT ETF (NYSEARCA:VNQ)
  • iShares MSCI Value ETF (NYSEARCA:EFV) We will also keep this ETF in the mix. Once more, we tilt toward value vs. growth and this ETF fills this requirement.
  • IShares MSCI EAFE Small Cap ETF (NYSEARCA:SCZ) We will keep this ETF in the mix. For now, we will need to limit our QPP analysis to three years as this ETF does not quite have a four-year history.
  • Vanguard Emerging Markets Stock Index Admiral Fund (VEMXX)
    • Vanguard MSCI Emerging Markets ETF (NYSEARCA:VWO) We include this ETF in all our portfolios so this is an old ETF friend.
  • iShares Barclays Short Treasury Bond ETF (NYSEARCA:SHV) We will keep this ETF as it has more than a three-year history. There are alternatives we can use as a substitute if necessary.
  • SPDR Barclays Capital Short-Term International Treasury Bond ETF (NYSEARCA:BWZ)
    • I do not have a good replacement for this ETF. Instead of going international, I will likely use TIP or TLT as a substitute for BWZ.

Now it is time to take these replacement ETFs and run several QPP analysis to see if the portfolios meet our requirements for projected return, projected uncertainty, and diversification.

Here are the nine primary ETFs we will be using in our QPP analysis: VTI, VOE, VBR, VNQ, EFV, SCZ, VWO, SHV, and TIP. If these nine ETFs do not meet our requirements, we will add ETFs to provide better diversification in an effort to reduce portfolio volatility or uncertainty. Watch for such an analysis.