Wealth Preservation With These ETFs (VYM, EEM, BSV, AGG)

The 2010 NBA Draft last week in New York City gave viewers an opportunity to see where the future stars of the league will spend their rookie seasons.  I want to give readers a playbook for investing a portion of newly earned wealth into Exchange Traded Funds (ETFs). 

Why ETFs? 

Exchange Traded Funds offer the benefits of: 

  • Diversification
    • ETFs often invest in an index or a group of stocks thereby spreading out an investors risk across multiple company’s
  • Low Cost
    • The average annual expense for an Exchange Traded Fund is 0.55% versus 1.5% for mutual funds*
  • Tax Efficiency
    • Limited buying and selling of stocks in the fund
    • Avoidance of capital gains associated with large stock sales by a portfolio manager to cover excessive redemption’s

The average salary for the top 10 2010 NBA draft picks was roughly $2.8 million according to data from HoopsHype.com.  Let’s take a look at an ETF portfolio based on ¼ of the average salary state above.  ($700,000)  Readers should also note that the average age for the top 10 draft picks was right around 20 years old.  The young ages of the players will allow for the inclusion of one or two high-risk investments meant to help the portfolio outpace inflation. 

Diversification 

The first lesson here is in diversification.  The stock market is definitely too risky for a player or any individual to invest all of their assets.  The goal is for the players to realize asset preservation and growth. 

The Funds 

NBA_ETFs_0628 

The Why? 

Vanguard High Dividend Yield Index ETF (NYSE:VYM):  Moves in essentially the same direction as the S&P 500 except that is has displayed more volatility over the past 3-years.  The S&P has lost 23% while the VYM fund has fallen 27%.  The 2.93% yield offered by VYM makes it a compelling choice. 

iShares MSCI Emerging Markets Index (NYSE:EEM):  Offers international exposure with a focus on China, Brazil, South Korea, Taiwan and South Africa.  Since most of the growth in population and demand for services is happening outside of the US that is where investors with a long time horizon should invest. 

Vanguard Short-Term Bond ETF (NYSE:BSV):  Fears of inflation can be tempered with this bond fund.   Its portfolio of bonds with short-term durations tends to outperform during periods of inflation. 

iShares Barclays Aggregate Bond (NYSE:AGG):  The aggregate bond fund offers a mixture of short and medium term bonds.  It’s another safety play combined with a 3.72% yield. 

Allocation 

The allocation used for these ETFs should be determined after a risk tolerance profile is taken along with a detailed report of short and long-term goals. 

Written By Gregory S. Davis From ETF Ready 


 

We have also put together some more details on the ETFs mentioned in the article below: 

Vanguard High Dividend Yield Indx ETF (NYSE:VYM) Visit Our VYM Category: HERE 

The investment seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that are characterized by high dividend yield. The fund tracks the performance of the FTSE/ High Dividend Yield index. It attempts to replicate the target index by investing all, or substantially all, of assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.

TOP 10 HOLDINGS ( 34.09% OF TOTAL ASSETS)  
Company Symbol % Assets
AT&T Inc. (T) 3.81
Bank of America Corporation Com (BAC) 3.47
Chevron Corporation Common Stoc (CVX) 3.35
Coca-Cola Company (The) Common (KO) 2.95
General Electric Company Common (GE) 4.1
Intel Corporation (INTC) 2.58
JP Morgan Chase & Co. Common St (JPM) 4.06
Johnson & Johnson Common Stock (JNJ) 4.01
Pfizer, Inc. Common Stock (PFE) 2.65
Wells Fargo & Company Common St (WFC) 3.11

Chart forVanguard High Dividend Yield Indx ETF (VYM) 

iShares MSCI Emerging Markets Index (NYSE:EEM) Visit Our EEM Category: HERE 

The investment seeks investment results that correspond generally to the price and yield performance of the MSCI Emerging Markets index. The fund generally invests at least 90% of assets in the securities of the underlying index or in ADRs and GDRs representing such securities. The index was developed by MSCI as an equity benchmark for international stock performance. It is nondiversified.

TOP 10 HOLDINGS ( 23.21% OF TOTAL ASSETS)  
Company Symbol % Assets
Bank Bradesco ADR N/A 1.7
Gazprom Oao N/A 1.72
HDFC Bank Limited Common Stock (HDB) 1.66
Itau Unibanco Banco Holding SA (ITUB) 2.62
KB Financial Group Inc (KB) 1.67
Petroleo Brasileiro S.A. ADR N/A 2.5
Petroleo Brasileiro S.A.- Petro (PBR) 2.12
POSCO Common Stock (PKX) 2.47
Samsung Electronics Co Ltd N/A 3.91
Taiwan Semiconductor Manufactur (TSM) 2.84

Chart foriShares MSCI Emerging Markets Index (EEM) 

Vanguard Short-Term Bond ETF (NYSE:BSV) Visit Our BSV Category: HERE 

The investment seeks to track the performance of a market-weighted bond index with a short-term dollar-weighted average maturity. The fund invests by sampling the index. It invests at least 80% of assets in bonds held in the index. The fund’s dollar-weighted average maturity is not expected to exceed 3 years.

TOP 10 HOLDINGS ( 15.54% OF TOTAL ASSETS)  
Company Symbol % Assets
CMT Market Liquidity Rate N/A 1.57
United States Treas Nts N/A 1.71
United States Treas Nts N/A 1.63
United States Treas Nts 1.25% N/A 1.51
United States Treas Nts 3.125% N/A 1.64
US Treasury Note 0.875% N/A 1.83
US Treasury Note 2.25% N/A 1.77
US Treasury Note 4.375% N/A 1.26
US Treasury Note 4.5% N/A 1.32
US Treasury Note 5.125% N/A 1.3

Chart forVanguard Short-Term Bond ETF (BSV) 

iShares Barclays Aggregate Bond (NYSE:AGG) Visit Our AGG Category: HERE 

The investment seeks investment results that correspond to the price and yield performance, before fees and expenses, of the total United States investment-grade bond market as defined by the Barclays Capital U.S. Aggregate index. The fund invests approximately 90% of assets in the bonds represented in the underlying index and in securities that provide substantially similar exposure to securities in the underlying index. The Underlying index measures the performance of the total United States investment-grade bond market.

TOP 10 HOLDINGS ( 23.78% OF TOTAL ASSETS)  
Company Symbol % Assets
FHLMC N/A 2.23
FHLMC N/A 1.79
Fhlmc Gold 30yr Feb 2010 Tba N/A 3.44
FNMA N/A 3.38
FNMA N/A 2.1
FNMA N/A 1.97
FNMA N/A 1.88
US Treasury Bond 7.5% N/A 2.03
US Treasury Note N/A 2.06
US Treasury Note 4.75% N/A 2.9

Chart foriShares Barclays Aggregate Bond (AGG)

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