This article will be the first in a series of articles about simple portfolio allocations for different levels of risk tolerance. In this article I will be constructing an Ultra Conservative portfolio of ETFs.
There are two goals I had for constructing the following portfolio:
- Make sure the portfolio is diversified as measured by correlations.
- Reduce the volatility of the portfolio by weighting the least volatile funds higher than more volatile funds. I used the 3 month volatility average over the last 12 months. [Volatility data is from ETFreplay.com]
SPDR Barclays Capital 1-3 Month T-Bill
PowerShares VRDO Tax-Free Weekly
PIMCO Enhanced Short Maturity Strategy ETF
[Data from ETFscreen.com]
Returns and Data
[Data from ETFreplay.com]
click to enlarge
The funds chosen are all short term bond funds with low correlations to each other and AGG, and SPY. The returns are less than that of a broad bond fund like AGG, but for someone that wants a portfolio of basically "Cash" funds that is to be expected.