One of the pleasant dilemmas facing blue-chip dividend investors is that it is difficult to "diversify" a portfolio away from dividend growth stocks without diworsifying the portfolio. I mean, Procter & Gamble (PG) has grown earnings by 9.0% annually for the past decade, IBM (IBM) has grown earnings by 12.0% annually for the past ten years, ExxonMobil (XOM) has grown earnings by 12.5% for the decade, and so on it goes across the universe of dividend bluebloods. When you own cash-producing assets that are growing earnings and dividends at a rate that is handily in excess of inflation, you probably do not feel a lot of pressure to "shake things up", particularly when most alternatives to owning blue-chip stocks don't seem to offer a high likelihood of improving the portfolio.

Sure, you could add some US bonds to your portfolio right now, but a ten year treasury bond only

I recently read an SA article by Bob Wells where he discussed a problem he has regarding who would take over management of his portfolio when he is no longer able to do so. He looked at ETFs as a possible solution, without complete satisfaction. David Van Knapp has also written in SA concerned with the same problem. I, and possibly most of us, have the same successor problem. Both David and I (with Bob and probably others) have analyzed using ETFs as a potential solution, without success. I believe a reason for this is that we all were looking at individual ETFs with the hope of finding one (at least) that satisfies the dividend growth criteria. This article takes another, broader, look.

The reason for these concerns is that we don't know how much maintenance is needed to keep our portfolios within its objectives. If we have chosen

By Alex Bryan

Small-cap value historically has been the best-performing segment of the United States equity market, and Vanguard Small Cap Value ETF (VBR) offers investors a low-cost way to take advantage of this value premium. It invests in the cheaper and potentially higher-returning half of the U.S. small-cap market. However, VBR is not for the faint of heart. Most small-cap stocks lack sustainable competitive advantages and are typically more volatile than the broad market. Within this segment, value stocks tend to carry slightly greater risk than their growth counterparts. Consequently, VBR is a suitable small core holding for long-term investors with a relatively high tolerance for risk.

Value stocks tend to carry relatively high business risk, poor prospects for growth, and may remain out of favor for years. Yet, investors tend to penalize these companies too much by extrapolating recent performance too far into the future. This myopic

When looking at long-term investment returns, a wise investor knows that you cannot simply look at return alone. Lowering taxes and expenses are your first priority in order to preserve and grow wealth.

When I first began researching the major differences between Mutual Funds and Exchange Traded Funds (ETFs), I found that many ETFs can offer similar holdings of mutual funds with greater tax efficiency, a lower expense, and often times a higher return. Another advantage is transparency! Recently ETFs have been a more popular choice, in fact, 2012 was a record year for ETF inflows at 191 billion dollars.

I first created this portfolio by taking popular high expensed mutual funds and finding cheaper alternatives that invested in mostly the same securities. Below is a list of the ETFs I chose along with the total portfolio suggested weight for a passive investment management that will give you some diversification,

One of the central tenets of asset allocation is to select a diversified portfolio. The idea is intuitive; you do not keep all your eggs in one basket. Everyone talks about being diversified but there is little discussion on how you measure the degree of diversification. Surprisingly, when I began to research this topic, I found that there is no universally accepted formula for assessing diversification. In fact, the whole topic of diversification is typically clouded with hand waving and qualitative judgments.

In finance, diversification means reducing portfolio risk by investing in a variety of assets that do not move in lock-step with one another. There are many types of portfolio risk (interest rate risk, event risk, etc.) but for this analysis, I will define the portfolio risk to be synonymous with volatility. Diversification can then be characterized as the degree that you reduce the volatility of a portfolio by

Our goal in this profile is to help investors wade through the many competing ETF offerings available. There are currently over 50 U.S. small-cap issues whether categorized as growth, value or blend. This is overwhelming for most investors. We try to help select those ETFs that matter even if they might be repetitive. The result is a more manageable list of issues from which to choose varying ETFs, perhaps by fees and history.

Our focus is to stick with the "blend" category since they should satisfy most investor needs. We believe these constitute the best index-based offerings individuals and financial advisors may utilize.

Uniquely, investors should remember: Small-cap issues usually carry higher beta (volatility or higher risk levels) than their large cap peers. This means during times of higher economic growth combined with accommodative Fed monetary policies returns in this sector should outperform larger cap issues. But, the opposite situation

March Madness is here! We're proud to roll out another year of our spin on March Madness. How does a collegiate basketball tournament that captures the majority of America tie into the investment world? Well, aside from the massive amounts of money and time that gets allocated to this event, there are some connections worth looking at. For the past few years we take this time to pontificate which asset classes and what specific stocks may outperform their respective benchmarks over the next year. We happen to be avid sports and hoops fans but as financial advisors we're joining both passions to attempt to connect some dots.

You may be asking what does a basketball tournament have to do with managing your portfolio or the investment world in general? At first glance it may not, but we thought we would have a little fun and couple it with some asset

The small-cap blend style ranks eleventh out of the twelve fund styles as detailed in my Style Rankings for ETFs and Mutual Funds report. It gets my Dangerous rating, which is based on aggregation of ratings of 21 ETFs and 648 mutual funds in the small-cap blend style as of February 13th, 2013. Prior reports on the best & worst ETFs and mutual funds in every sector and style are here.

Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the style. Not all small-cap blend style ETFs and mutual funds are created the same. The number of holdings varies widely (from 22 to 2305), which creates drastically different investment implications and ratings. The best ETFs and mutual funds allocate more value to Attractive-or-better-rated stocks than the worst, which allocate too much value to Neutral-or-worse-rated stocks.

To identify the best and

Diversified ETFs are a great way to buy the total U.S. stock market. However, mid-cap and small-cap ETFs provide a way to focus on particular market segments .

"Mid caps are considered too big and safe for those seeking volatile small cap exposures, while they are often considered too risky and uncertain for those who want the stability of mega caps," Zacks Equity Research wrote.

Mid-cap stocks and ETFs are in a better position to mitigate risk since they have more room for growth and capital appreciation than large-caps, according to the report.

Plus, should any political instability impact the stock market later in the year, mid-caps can tolerate more market volatility than their smaller and larger counterparts. Recently, large-cap funds such as the SPDR S&P 500 (SPY) have seen outflows in the billions. Still, SPY has managed to gain 5.3% in 2013, signaling investor confidence in

In a previous article I explained how I am trying to develop and use my Keep It Simple, Stupid (K.I.S.S.) method to build my portfolio of dividend growth stocks. My purpose is to create a steam of income, which will continue to grow over the next 15-20 years, and hopefully fund my retirement. This will be the first in a series of articles I will write to show the stocks I own, to show the transactions I make, and to show the progress I am making towards my goals. I plan on posting these updates whenever I receive another pension contribution into my account (about every three months). At that time I will invest those funds, plus accumulated dividends, either in new stocks, or to buy more shares of the stocks I already own.

As a part time investor, with many other things

Vanguard, the third largest exchange traded fund player in the U.S. markets, swapped out the MSCI indices on four of its U.S.-listed ETFs to University of Chicago-linked CRSP benchmarks.

On the last day of January, Vanguard announced the change:

• Vanguard Mega Cap Index ETF (MGC) tracks the CRSP US Mega Cap Index, replacing the MSCI US Large Cap 300 Index. Additionally, the fund changed its name from the Vanguard Mega Cap 300 ETF.
• Vanguard Large-Cap Index ETF (VV) tracks the CRSP US Large Cap Index, replacing the MSCI US Prim market 750 Index.
• Vanguard Mid-Cap Index ETF (VO) tracks the CRSP Mid Cap Index, replacing the MSCI US Mid Cap 450 Index.
• Vanguard Small-Cap Index ETF (VB) tracks the CRSP US Small Cap Index, replacing the MSCI US Small Cap 1750 Index.

These will be the first Vanguard ETFs to transition to the CRSP indices.

Are you looking for a portfolio that pulls down the projected standard deviation? If so, take a look at the asset allocation mix shown in the following analysis. I would classify this portfolio as conservative.

QPP Analysis: By pulling the projected standard deviation under 10% (the good news), one also pays a price by reducing the projected return to 5.5% (the bad news). Note that this analysis covers three years of data as there were several short history securities in the list. Don't pay attention to VNQI as it has a "short record" and that tends to improve the projected results.

Several choices hold down the performance in this portfolio. As you can see, SHY contributes little to the return. However, it does bring a low correlated ETF to the party. The Diversification Metric at 33% does not meet our goal of 40% or higher. The Portfolio Autocorrelation

Despite a resolution to the fiscal cliff, the consequences of the budget deal will still negatively affect the markets and exchange traded funds. One iShares analyst points out some potential pitfalls and opportunities in the months ahead.

"The fiscal drag left in place by the deal, coupled with the lingering uncertainty surrounding the debt ceiling, leads us to expect a weak economic start to 2013," Russ Koesterich, Managing Director, BlackRock's Global Chief Investment Strategist, said in a research note.

With the debt ceiling just right around the corner, investors will probably see more market swings.

"We expect to see more volatility," Koesterich said. "Investors should be prepared for a bumpier ride in 2013, at least until Washington produces a more definitive, long-term agreement."

For instance, the CBOE Volatility Index, or "VIX," topped out around 23 before the fiscal cliff deadline, but it has since dipped to levels last seen in

Midcap stocks have been called the "equities sweet spot". Is this justifiable? In a word, it is.

Based on the data available, midcap stocks have performed much better over the years than large cap or small cap stocks. However, now, there are at least six different measures of what constitutes a U.S. midcap stock. Which of these measures centers on the perceived sweet spot? If midcap companies are advantaged overall, why are they advantaged?

Midcap Stock Indexes

Below are six U.S. midcap stock indexes. Each of these indexes tracks a different number of stocks and stocks of a somewhat different average market capitalization. The listing is in approximate, if not exact, average market capitalization order.

Vanguard's decision in October to switch its underlying index benchmarks from MSCI to the CRSP indices (for US exposure) and FTSE indices (for international) was a very significant one for the wealth management industry. The assets in Vanguard mutual funds and ETFs tracking these indices are in the range of $500Bn, impacting a large number of investors.

We decided to take a deeper dive starting with the US benchmark switch, to see if the new indices have a very different risk profile. If they do, it would imply that Vanguard has effectively changed the type of exposure and therefore the likely return premiums that investors would capture in the future.

We used the Fama-French 3-factor model to compare each pair of index benchmarks. For each index, we ran a linear regression against the 3 risk factors using historical returns since 2003. The risk factors were measured as follows:

· Market

You see and hear a lot of talk about overweighting stocks, but there is little good information regarding how to do this. There should be a tool you can use on your own to determine how much you should overweight. Herein, I present such a tool. You do not need to use the exact tool I am presenting, but you should have something like it.

In the following portfolio, slight adjustments are introduced. First, I made the correction of using VO instead of VOE. EXCEL™ automatically filled in the "E" when I intended to use the mid-cap blend ETF, VO. In this allocation arrangement, U.S. Fixed Income, BND, is reduced from 17% to 12%. In its place 5% is allocated to international distressed debt PCY. Domestic real estate, VNQ, is lowered by 100 basis points and we increase private equity, PSP, by 100 basis points. In the following slides we have the Quantext Portfolio Planner (QPP) analysis and the correlations.

Another portfolio one can reference or use for comparison is the "Swensen Six" as analyzed over on Seeking Alpha.

QPP Analysis: The following Strategic Asset Allocation plan raises the projected return to a little over 8%. This meets the goal of exceeding the projection for the S&P 500 by 100 basis points. We give

Vanguard ETFs have been a phenomenal success: it is rapidly becoming the most favorable ETF provider by investment advisors and average investors, even though iShares retains the largest market share.

We compare U.S. small cap stock ETFs in the following tables:

U.S. Small Cap Blend 09/28/2012

U.S. Small Cap Growth 09/28/2012

U.S. Small Cap Value 09/28/2012

Is it better to construct a portfolio based on allocating assets around capitalization divisions or is one better off using a risk adjusted platform? The following two screen shots show the details of these two approaches to portfolio construction. In each case, I am using ten ETFs that provide worldwide diversity. Four years of historical data goes into the following Quantext Portfolio Planner (QPP) analysis. In the first example, I will use the familiar capitalization model or the approach we use with the ITA portfolios tracked on this blog.

Capitalization Model: The following capitalization asset allocation model mirrors the "Swensen Six" portfolio in that 30% of the assets are allocated to U.S. Equities (VTI and VB), 20% to international markets (VEA and VWO), 20% to real estate (VNQ and RWX), and the remainder to treasury instruments and commodities.

The projected return is 8.6% or 1.6% above that projected