We continue to investigate equities that can help bolster portfolios in these challenging conditions.
Matt Koppenheffer recommends three stocks with which you can play defense.
He selects three of the best companies with long term strength that should provide stability. His selections are:
It is important to understand that these companies are not going to be rocket stocks. While you are likely to have downside risk limited, you also will have limited upside risk. We quickly forget prevailing market conditions and wonder why we made the choices we did.
It will be interesting to compare this with our ETF benchmark of a balanced portfolio of Dividend producing ETFs.
| Asset | Fund in this portfolio |
|---|---|
| REAL ESTATE | ICF (iShares Cohen & Steers Realty Majors) |
| CASH | CASH |
| FIXED INCOME | TIP (iShares Barclays TIPS Bond) |
| Emerging Market | VWO (Vanguard Emerging Markets Stock ETF) |
| US EQUITY | DVY (iShares Dow Jones Select Dividend Index) |
| US EQUITY | VIG (Vanguard Dividend Appreciation ETF) |
| INTERNATIONAL EQUITY | IDV (iShares Dow Jones Intl Select Div Idx) |
| High Yield Bond | HYG (iShares iBoxx $ High Yield Corporate Bd) |
| INTERNATIONAL BONDS | EMB (iShares JPMorgan USD Emerg Markets Bond) |
- 3 Stocks to Play Stock-Market Defense -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
Portfolio Performance Comparison
| Portfolio/Fund Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| Retirement Income ETFs Tactical Asset Allocation Moderate | 7% | 65% | 10% | 81% | 10% | 68% |
| 3 Stocks to Play Stock-Market Defense | 15% | 133% | 5% | 25% | 6% | 30% |
| Retirement Income ETFs Strategic Asset Allocation Moderate | 5% | 43% | 6% | 30% | 4% | 15% |
This selection of equities performs reasonably well -- matching the dividend ETF portfolio fairly well. Given that there are only three equities in the portfolio, the volatility is very good. This is worth considering as the recent performance is very strong.
Three Month Chart
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One Year Chart
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Three Year Chart
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Five Year Chart
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The more detailed analysis and graphs give you a visual view of the volatility.
It is definitely worth considering strengthening your defense and these three are a good choice for that.
Disclosure: MyPlanIQ does 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. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
