Morningstar's Moderate-Risk ETF Portfolio

by: Tom Lydon

Retirees seeking a moderate risk in their exchange traded fund investment portfolios will want to lean more toward the safety of bonds but still hold enough equities to provide some level of capital appreciation, according to Morningstar.

The moderate portfolio for retirees and pre-retirees is “appropriate for retirees with a time horizon (estimated life expectancy) of 15-20 years,” writes Christine Benz, director of personal finance at Morningstar. The portfolio tries to provide stable and modest growth.

ETFs are low cost, tax efficient and easy to use investments that allows individuals to take control of their investments.

The moderate ETF portfolio holds less than half of its assets in equities and the rest in cash, Treasury Inflation-Protected Securities and other bonds. Bonds provide some level of stability for any portfolio and also generate some returns over the long-run.

The portfolio holds separate bond holdings, including iShares iBoxx $ Investment Grade Corporate Bond (NYSEARCA:LQD) at 13.5% and mortgage-backed iShares Barclays MBS Bond (NYSEARCA:MBB) at 8%.

Additionally, the portfolio holds assets in government bonds that try to limit the negative effects of inflation, such as iShares Barclays TIPS Bond (NYSEARCA:TIP) at 20%, Vanguard Short-Term Bond ETF (NYSEARCA:BSV) at 11%, and a smaller allocation in SPDR DB International Government Inflation-Protected Bond (NYSEARCA:WIP) at 3%.

Equities holdings include the basic U.S. market-capitalization funds with some international diversification, including the Vanguard Mega Cap 300 Index (NYSEARCA:MGC) at 20%, Vanguard Mid-Cap ETF (NYSEARCA:VO) at 7%, Vanguard Small-Cap ETF (NYSEARCA:VB) at 3%, iShares MSCI EAFE Index (NYSEARCA:EFA) at 7% and the Vanguard Emerging Markets ETF (NYSEARCA:VWO) at 1.5%.

Around 6% should be held in cash or cash equivalents. Cash held should be dependent on spending needs, income generating assets and the size of the overall portfolio, according to Morningstar, the Chicago-based investment researcher.

Max Chen contributed to this article.

Disclosure: None