Tag Archives: america

Go On The Offensive To Preserve And Build Wealth

By Carl Delfeld I’ll never forget the advice given to me by the CEO of UBS Wealth Management. “Carl, remember one thing. Before you go out and tell your clients all the ways you’re going to make them money, try your best not to lose any.” And it’s certainly great advice for all of us, as we move into 2016 amid a high degree of uncertainty. Preserving capital should always be the top priority. Unfortunately, the traditional defensive strategy recommended to achieve this goal – high-quality bonds and blue-chip U.S. stocks – is obsolete. Rising interest rates could crush many bond portfolios, and you only have to look back at the global financial crisis to see how many blue-chip stocks lost almost half of their value in the blink of an eye. Let me share with you two potential ways to protect wealth that you won’t hear about anywhere else. They’re also a low-risk method to build wealth. One: Don’t Become Too Cautious and Defensive First, as any coach or smart sports fan will tell you, the surest way to lose a game when you’re ahead is to become too cautious and defensive. Why? You tend to become tentative, miss opportunities, and lose the initiative that built your success in the first place. It’s far better to intelligently stay on offense, pushing ahead while trying not to take any undue risks. Above all, this is never the time to try the same old tired plays. Two: Stay Open-Minded and Flexible This brings me to the second way to protect wealth, the need to be open-minded and flexible. For the past four or five years, a portfolio of U.S. stocks has performed pretty well, with the flat 2015 being an exception. Part of this is due to the Fed pumping in massive amounts of liquidity, no competition from zero rate Treasuries, and to the strong U.S. dollar attracting capital and hurting international stock returns. It certainly appears to me that at least some of these trends are reversing. This means you need to adjust by taking off the blinders and searching for new opportunities. And to do this you need to fight “home bias.” Going on the Offensive Home bias is the tendency to invest too much in your home country, thereby neglecting overseas opportunities. It’s very comfortable to lean towards the home stock market, but it is contrary to a cardinal rule of investing – not putting all your eggs in one basket. It’s also at odds with common sense since no one country – even America – has a monopoly on growth, value, and progress. When you really think about it, this home bias is puzzling. Why should the world’s best companies with the best growth prospects just happen to be in America or wherever your home country happens to be? I say this even though I’m a huge believer in America’s future, if we pursue the right policies and reforms. This is why I authored a book outlining what needs to be done: Red, White & Bold: The New American Century. In short, where a company is based means less and less; and what it does, and how well it performs, means more and more. And this is especially true for emerging markets, as the value of their stock markets plays catch-up with their contribution to global economic growth and share of the global economy. Just take a glance at these two great charts by JP Morgan. U.S. stock markets still dominate, accounting for 46% of the value of all listed companies in the world, while Japan’s share has dropped sharply from its peak in 1989 at over 30% to just 8% today. The share going to emerging markets has grown sharply, but still sits at around 13%, even though emerging markets represent 83% of the world’s population and half of global growth and output. This big gap between the value of all emerging-market-publicly traded companies and their contribution to global growth and the world’s economy will narrow – and this is your opportunity to cash in. The key trend to watch is the direction of the U.S. dollar. If the greenback levels out or begins to pull back in early 2016, undervalued emerging markets will really take off. The strategy you use to take advantage of this mismatch is critical. Stick with high quality companies showing good growth and strong balance sheets. Diversify across many countries, while favoring those that respect private capital, rule of law, a free press, and open markets. Most importantly, always use a trailing stop-loss to minimize risk. It’s the best hedge to protect your portfolio from a weaker U.S. dollar, and it could really supercharge your returns in 2016. Original Post

Worst Performing Mutual Fund Categories Of 2015

We have already shared with you the best and worst performing mutual funds in the Zacks Mutual Fund Commentary section, and last time we discussed the Top 5 Mutual Fund Sectors in 2015 . Now, let’s look at the worst performing mutual fund categories. Each of the quarters of 2015, save the final one, spelt agony for investors. Benchmarks saw their worst yearly finishes since 2008, and mutual fund investors too felt the pain. The year 2015 turned out to be anything but rewarding for most mutual funds. Stock funds also proved volatile, and bond funds delivered losses. While 87% of the funds gained in the first quarter of 2015, just 41% of mutual funds could manage to finish in the green in the second quarter. In the third quarter, a dismal 17% of mutual funds managed to finish in the green. The fourth quarter was the only saving grace, wherein many mutual fund categories attempted to reverse their year-to-date losses. Nonetheless, the majority of fund categories had ended in the red. The biggest category losers in 2015 were in line with certain key events of 2015. For example, the slump in crude prices continued through 2015, dragging the energy sector to the bottom. Meanwhile, the Latin American economies were under pressure, and mutual funds focused on that region too had to share the pain. Similarly, as the commodities were battered by a surging dollar, among other headwinds, these funds too ended deep in the red. Fund Category Losers Below, we present the 10 biggest mutual fund category losers of 2015: Fund Categories 2015 Return (%) Energy Limited Partnership -34.75 Latin America Stock -29.94 Equity Energy -27.16 Commodities Broad Basket -23.97 Equity Precious Metals -23.25 Natural Resources -22.16 Diversified Emerging Mkts -13.78 Commodities Precious Metals -12.16 Utilities -9.86 Pacific/Asia ex-Japan Stk -7.38 Source: Morningstar Energy Sector The downtrend started in mid-2014, and the slump for energy prices continued in 2015 as well. WTI Crude Oil was at $52.72 on Jan 2, 2015, while Brent Crude Oil was at $55.38. From those levels, both slumped to near $36 by the year-end. This obviously resulted in a slump in the energy sector and Equity Energy and Energy Limited Partnership were among the biggest mutual fund category losers in 2015, being 34.8% and 27.2% down, respectively. Moreover, not a single Equity Energy mutual fund ended in the green in 2015. As crude prices are hovering around their 7-year lows, the top energy companies have cut spending (particularly on the costly drilling projects) on the back of lower profit margins. This, in turn, has meant less work for the beleaguered drillers as offshore exploration for new oil and gas projects has almost come to a standstill. Moreover, the dollar surge is another headwind for the energy sector. In the absence of production cuts from OPEC, the resilience of North American shale suppliers to keep pumping despite crashing prices, and a weak European economy, not much upside is expected in oil prices in the near term. Fund to Sell Putnam Global Energy Fund A (MUTF: PGEAX ) seeks long term capital growth. PGEAX invests primarily in global large and mid-size companies involved in exploration, production and refinement of conventional and alternative sources of energy. PGEAX currently carries a Zacks Mutual Fund Rank #4 (Sell). In 2015, PGEAX had lost 35.8% and the 1-year loss is 38.8%. Also, the 3 and 5-year annualized losses now stand at 18.5% and 11.7%. The annual expense ratio of 1.27% is lower than the category average of 1.51%, but PGEAX carries a front-end sales load of 5.75%. Latin America The Latin America Stock fund category was the second biggest loser, which plunged nearly 30% in 2015. Latin America mutual funds had a torrid run in the last five years, witnessing heavy outflows and dismal performances. The year 2015 was no different for them, as they had to tackle the failure of its largest economy, Brazil, among other headwinds. Brazil is witnessing the worst recession in decades after its GDP nosedived 4.5% year on year in the third quarter. Meanwhile, the U.S.-domiciled Latin America funds saw their asset base slump 85% to $1.4 billion since 2010. South America’s second-largest economy, Argentina, has been plagued with weak growth, high inflation, declining currency and debt default issues. The macroeconomic outlook according to LatAmEconomy.org is not favorable either. They acknowledge that the high economic growth prospects experienced in the 2000s are over now. Per the website, “The region continues to deal with a deteriorating external environment that, without experiencing any major internal crises, is leading to modest growth rates. Medium-term growth projections, however, show further downward revisions.” Some experts fear that the outflows may continue, forcing many investors to stay away from the Latin America focused funds. Thus, the survival of some of these funds may well be in question. Fund to Sell Deutsche Latin America Equity Fund A (MUTF: SLANX ) invests most of its assets in Latin American common stocks. A maximum of 20% of assets may be invested in US and other non-Latin American issuers and debt securities that may include junk bonds. SLANX currently carries a Zacks Mutual Fund Rank #5. In 2015, SLANX had lost 30.4% and the 1-year loss is 35.3%. Also, the 3 and 5-year annualized losses now stand at 20.4% and 14.5%. The annual expense ratio of 1.54% is however lower than the category average of 1.75%. SLANX carries a maximum front-end sales load of 5.75%. Commodities, Precious Metals In addition to the slump in crude prices, imminent rate hike fears also kept the commodities under pressure. The U.S. dollar also kept surging in 2015, hitting multi-year high against the euro. Stronger dollar intensified the downward pressure on commodities. Dollar-denominated commodity prices, including crude oil, turned out less affordable to users of other currencies. Moreover, borrowings are set to be costlier and particularly so for high-yield firms. On that note, precious metals too were obviously affected. Remember, higher rates tend to weigh on precious metals, as they provide no yield and struggle to compete with interest paying assets in the wake of rising borrowing costs. As the Fed ended an era of extraordinary monetary policy easing by hiking interest rates in December last year, gold prices plummeted to six-year lows. The gold rout will also hit metal producers who are already reeling under a depressed pricing environment. Gold miners are trimming costs and shedding non-core assets to optimize their portfolio as they grapple with lower prices of the metal. Fund to Sell Vanguard Precious Metals and Mining Investor (MUTF: VGPMX ) invests in domestic and non-US firms that are primarily involved in exploration, mining, development, fabrication, processing, and marketing of metals or minerals such as gold, silver, platinum, diamonds, or other precious metals. A maximum of 20% of its assets may also be invested directly in gold or other precious metal bullion and coins. VGPMX currently carries a Zacks Mutual Fund Rank #4. In 2015, VGPMX had lost 29.6% and the 1-year loss is 35.6%. Also, the 3 and 5-year annualized losses now stand at 26.8% and 22.5%. The annual expense ratio of 0.29% is however lower than the category average of 1.43%. VGPMX carries no sales load. Diversified Emerging Markets & Asia Diversified Emerging Markets slumped 13.8% in 2015. According to Bank of America Merrill Lynch’s monthly survey, fund managers are the most underweight on emerging-market equities against developed-market equities since the survey began in 2001. Goldman Sachs projects that yuan traded at an offshore rate may weaken by 2.5% to 3% against the dollar in the next 2 months. Eventually, the devaluation of the yuan may impact other emerging market currencies, as they are often influenced by the monetary policies in the world’s second-largest economy, China. The bearish outlook is concentrated mostly on Asia. Investors are apprehensive about the slowdown in China’s economy while the U.S. central bank may hike rates. Perhaps, this explains why Pacific/Asia ex-Japan Stock category was the 10th biggest loser in 2015. However, the Japan category was the best gainer in 2015, justified by the multi-year record highs that Japan’s key index hit in 2015. Funds to Sell Rydex Emerging Markets 2X Strategy Fund A (MUTF: RYWTX ) seeks returns that are 200%, excluding fees and expenses, of the daily performance of the BNY Mellon Emerging Markets 50 ADR Index. RYWTX invests most of its assets in companies listed in the underlying index and in derivatives. RYWTX currently carries a Zacks Mutual Fund Rank #5. In 2015, RYWTX had lost 37.4% and the 1-year loss is 35.6%. Also, the 3 and 5-year annualized losses now stand at 26.1% and 22.9%. The annual expense ratio of 1.75% is however lower than the category average of 2.01%. RYWTX carries a maximum front-end sales load of 4.75%. Aberdeen Asia Pacific (ex-Japan) Equity Fund A (MUTF: APJAX ) invests most of its assets in companies from the Asia-Pacific region, but excluding Japan. The equity securities may be of any market capitalization. APJAX may also invest in emerging economies, without any limit. APJAX currently carries a Zacks Mutual Fund Rank #5. In 2015, APJAX had lost 17.6% and the 1-year loss is 19.3%. Also, the 3-year annualized loss now stands at 7.7%. The annual expense ratio of 1.50% is however lower than the category average of 1.57%. APJAX carries a maximum front-end sales load of 5.75%. Original Post

Introducing The ETF Monkey 2016 Model Portfolio

Summary For the past couple of weeks, I have been reading extensively through the 2016 investment outlooks of top-quality research firms. In this article, I will present six themes that I gleaned from my research. Ultimately, I will assign weightings and present The ETF Monkey 2016 Model Portfolio. In future articles, I will develop ETF-based portfolios based on this model, from three major providers. First of all, I would like to begin with a word of thanks to my 366 followers, and 88 real-time followers. When I started my work here on Seeking Alpha using the pseudonym ETF Monkey, I had a total of 59 followers from my previous work and, I believe, only five or six real-time followers. I am deeply grateful to each and every one of you! This past July 1, I presented The ETF Monkey Vanguard Core Portfolio . The portfolio features what I call “beautiful simplicity,” demonstrating that one can build a low-cost, greatly diversified portfolio with as few as three ETFs. Like many other authors here on Seeking Alpha, I would now like to offer my thoughts on a model portfolio for 2016. I have spent a fair amount of time over the past couple of weeks reviewing various 2016 outlooks from a variety of quality sources; including PIMCO , BlackRock (NYSE: BLK ), Wells Fargo (NYSE: WFC ), Vanguard , Bank of America Merrill Lynch (NYSE: BAC ), Goldman Sachs (NYSE: GS ), Deloitte , and AAII . Needless to say, there is a great deal of divergent thought represented in these outlooks. And, certainly, I was not able to carefully read every last word of every outlook. What I focused on, though, was looking for common themes ; ideas that ran through more than one outlook. From that research, I have developed The ETF Monkey Model 2016 Portfolio . In this article, I will feature the main themes that struck me, as well as outline what I believe to be a model asset allocation for the year ahead. But I am also going to go a step further. I will follow up this “theoretical” work in future articles by selecting what I believe to be the best ETFs to use to actually construct this portfolio. I will do so for three different major providers: Vanguard, Fidelity (featuring iShares funds), and Charles Schwab (NYSE: SCHW ). The idea will be that investors who use these three providers can select commission-free ETFs both to build and subsequently rebalance their portfolios, all without incurring excess trading costs. Finally, using closing prices on December 31, 2015, I will both build and track each version moving forward to get some idea of comparative performance. I will also track all of them against the performance of The ETF Monkey Vanguard Core Portfolio. As readers may surmise, I have a two-fold goal from this exercise: To attempt to determine how much of a difference selecting ETFs from different providers makes if one starts from the same basic place. For example, in some cases, one provider may offer a better expense ratio for a certain component or asset class. How much difference does this make over time? To attempt to determine if this “ideal” 2016 portfolio is able to outperform the rather basic ETF Monkey Vanguard Core Portfolio, built very simply using three core Vanguard ETFs and using the weighting derived from the Vanguard Target Retirement 2035 Fund ; designed for an investor approximately 20 years from retirement. Let’s begin by taking an overall look at the big picture. The Big Picture As they say, “a picture is worth a thousand words.” With that in mind, I am going to open this section, called “The Big Picture,” by very literally presenting three big pictures. Here’s the first one, from PIMCO’s 2016 outlook, featuring 10-Year return estimates across several asset classes: (click to enlarge) Take a quick look across those projections, particularly the asset classes highlighted in red. You will see each of those show up in some fashion in the themes I will develop as the article progresses. Here is our second big picture. This one is from BlackRock’s 2016 Outlook. (click to enlarge) Similar to the first picture, look at the boxes and arrows, and what they indicate. You may already be able to discern some common themes simply by comparing these two graphics. Finally, using the S&P 500 index to represent the U.S. stocks and various Vanguard ETFs as proxies for other averages, have a look at how various markets have performed over the most recent two-year period. In the graph below, the Vanguard FTSE Developed Markets ETF ( VEA) represents developed markets as an overall group, the Vanguard FTSE Emerging Markets ETF ( VWO) represents emerging markets, and the Vanguard FTSE Europe ETF ( VGK) represents Europe specifically. ^GSPC data by YCharts With that overview, we now come to six investment themes gleaned from my research, which I believe will benefit investors in 2016. Theme #1: The “New Neutral” Some investors may recognize the phrase “new neutral” as being from PIMCO, and you would be correct. Here is a brief quote concerning its overall expectations: At the center of our New Neutral thesis is the belief that even as central banks raise rates, they will do so slowly and prudently… We don’t foresee an inflation problem… Low interest rates and moderate inflation together support a muted but prolonged business cycle, and we believe this combination helps to sustain current asset valuations. We would argue that the tailwind from ever-lower policy rates… is largely past us. Moreover, current valuations… are likely to constrain potential returns going forward. Therefore investors must adjust to a world where returns on asset classes and the paradigm for constructing optimal portfolios over the next five years are unlikely to resemble those of the last five or even 30 years. Echoing similar sentiments, BlackRock’s 2016 Outlook offers the following: The wave of central bank liquidity looks to have crested. Monetary policy may take a back seat to other cycles for the first time since the financial crisis. Finally, this from Vanguard’s 2016 Investment Outlook: The U.S. Federal Reserve is likely to pursue a “dovish tightening” cycle that removes some of the unprecedented accommodation exercised due to the “exigent circumstances” of the global financial crisis. In our view, there is a high likelihood of an extended pause in interest rates at, say, 1%, that opens the door for balance-sheet normalization and leaves the inflation-adjusted federal funds rate negative through 2017. Essentially, this theme posits a period of muted results as we move forward. At the same time, while the tailwind provided by the current interest rate environment is almost surely behind us, the Fed is expected to move slowly with respect to raising interest rates, allowing some maintenance of current asset valuations. Theme #2: Better Opportunities May Exist Outside the U.S. Our second theme takes note of the historically high valuations currently reflected in the U.S. market, and the fact that one may find better returns in 2016 by being willing to look beyond the shores of the United States. For this section, we will think very broadly in terms of the entire international segment, both with respect to developed and emerging markets. I will feature two specific targets in later sections. The BlackRock 2016 Outlook features this theme extremely succinctly: Valuations appear to have leapt ahead of the business cycle in many markets, especially in the U.S. We have essentially been borrowing returns from the future. PIMCO’s outlook appears to agree with this thesis, as explained here: In developed markets, to name a few examples, we believe global equities outside of the U.S. offer better forward return potential than those within. Across credit sectors we see superior opportunities in European financial and U.S. housing sectors. With respect to government debt, we generally find inflation-linked securities more attractive than their nominal counterparts. Finally, from Vanguard: The growth outlook for developed markets, on the other hand, remains modest, but steady. As a result, the developed economies of the United States and Europe should contribute their highest relative percentage to global growth in nearly two decades. Based on this theme, I will include a relatively modest allocation for domestic (U.S.) equities and what may be considered to be a somewhat aggressive allocation in developed international markets in my model portfolio for 2016. Theme #3: Consider Europe The BlackRock 2016 Outlook specifically features Europe as a candidate for consideration. It writes: For example, we suggest building exposure to cheaper developed markets where monetary policy is unambiguously expansionary and valuations are more forgiving, such as in Europe and Japan. This is backed up by a helpful table comparing the valuation levels of U.S. securities against their European counterparts, both in various sectors as well as overall. (click to enlarge) PIMCO also features this in its outlook, noting many of the same characteristics. Looking around the globe, European equities appear attractive over the secular horizon. In addition to the broader developments discussed, the trend toward increased dividend payout and a higher equity risk premium provide a good backdrop for superior returns. European equities offer high levels of earnings yields and valuations are lower relative to history. In its Q4 Global Economic Outlook , after frankly discussing the challenges Europe faces from the slowing Chinese economy, Deloitte offers the following observation: Despite this very volatile, challenging environment, the Eurozone has continued its recovery. In fact, this may be seen as evidence that the recovery can now weather external shocks. In this way, the Eurozone has left the “stall-speed-phase” of the recovery behind, in which it was highly vulnerable to external turbulences. Finally, with regard to the related outlook for monetary policy in Europe, Vanguard notes: Elsewhere, further monetary stimulus is highly likely. The European Central Bank and Bank of Japan are both likely to pursue additional quantitative easing and, as we noted in our 2015 outlook, are unlikely to raise rates this decade. Based on this theme, in addition to my overall allocation in developed international markets, I will include a small additional allocation dedicated specifically to Europe in my model portfolio for 2016. Theme #4: A Measured Gamble on Emerging Markets This particular item may be the most high-risk, high-reward venture within the portfolio. The picture in emerging markets is far from clear. In my research, I found comments ranging from great concern to cautious optimism. Clearly, the impact from China may be acutely felt in these economies, so could the effects of the Fed increasing interest rates in the U.S. Perhaps, the clearest example of a positive comment I saw comes from PIMCO. It acknowledges the risks but, at the same time, offers some possible reasons for optimism: Turning to emerging markets (EM), we believe that on average these sectors should outperform comparable developed market sectors over the secular horizon, but are likely to do so with higher volatility and other risks that must be considered. As in the developed markets, lower yields have been a tremendous supporter of performance for EM assets following the financial crisis. However, in the past few years, emerging markets have gone through numerous challenges that have led to generally disappointing performance. Lower growth, lower commodity prices, weak exports and a strong U.S. dollar recently have been serious headwinds. The silver lining of the recent challenges, however, is that EM assets generally offer more favorable starting valuations. EM growth, which is expected to be higher than in developed markets, also helps valuations appear attractive. Add in the higher level of investments and productivity enhancements, and we have a favorable backdrop for attractive secular returns from emerging markets. Bank of America/Merrill Lynch offers this somewhat positive view: Start of emerging markets recovery – For the first time since 2010, average annual growth in emerging markets should begin rising to 4.3 percent in 2016 from 4.0 percent in 2015. Excluding China, growth should pick up to 3.1 percent in 2016 from 2.6 percent in 2015. About three-quarters of emerging market economies could show signs of recovery by the middle of 2016, whereas Brazil could contract further to -3.5 percent as it struggles to climb out of recession. Investment likely will become the key driver of the emerging market recovery. Asset price returns of roughly 2.7 percent for external sovereign debt, 2.5 to 3.5 percent for emerging market corporate debt, and 1.0 percent for local currency debt are expected in 2016. In contrast, Vanguard cautions: Most significantly, the high-growth “goldilocks” era enjoyed by many emerging markets over the past 15 years is over. Indeed, we anticipate “sustained fragility” for global trade and manufacturing, given China’s ongoing rebalancing and until structural, business-model adjustment occurs across emerging markets. We do not anticipate a Chinese recession in the near term, but China’s investment slowdown represents the greatest downside risk. Finally, BlackRock summarizes their view of emerging markets this way: Investor sentiment is near record lows, according to the latest BofA Merrill Lynch Global Fund Manager Survey, which we view as a good contrarian indicator. Assets also are generally cheap… The same is true for companies that derive a large part of their revenues from the emerging world including China. They have severely underperformed in the past year… and now offer selected value. We are nibbling at EM assets, but not enough to fill our overall underweights. I have been watching this segment closely for some time. Given the weak pricing of this asset class, which can be graphed as being basically flat since 2009, this is going to be the biggest gamble in my model portfolio for 2016. I am going to assign it a relatively aggressive weighting of 7.5%. Theme #5: Consider TIPS As A Preferred Alternative To Bonds This theme actually caught me by surprise as I went through my research. With the prospects for inflation remaining low, TIPS have fallen somewhat out of favor of late. Interestingly, this is commented on favorably in BlackRock’s outlook: Among government bonds, only Treasury Inflation Protected Securities (TIPS) have gotten cheaper. Ten-year TIPS are effectively pricing in an average annual inflation rate of just 1.25% measured in personal consumption expenditures (PCE) terms, well below the Fed’s 2% target. Even 30-year inflation expectations have been dragged down by the oil price slump, pricing in annual PCE inflation of 1.45%. Can inflation really stay so low for so long? This sets a low bar for TIPS to outperform nominal bonds. PIMCO appears to agree with this view. Here are its comments: For the core government bond anchor in a multi-asset portfolio, we like U.S. TIPS (Treasury Inflation-Protected Securities). Not only are they an asset carrying only one risk, real rate risk (unlike nominal government bonds that carry both real rate and inflation risks), but we also view them as attractively valued relative to nominal bonds. The large amount of slack in the global economy over the past few years as well as the recent commodity price correction have resulted not only in a drop in inflation expectations (and fears of possible deflation until recently), but also in a near complete removal of inflation risk premium from the markets. Under these conditions, we think TIPS are an attractive choice for the core fixed income component of a multi-asset portfolio. Based on this theme, my allocation to TIPS will actually exceed my generic allocation to bonds in my model portfolio for 2016. In addition, my allocation to bonds will be right on the middle of the market, in terms of duration. I hope to balance the amount of income provided with overall downside risk. Theme #6: Include Some Exposure To REITs A truly diversified portfolio includes exposure to both multiple geographies as well as multiple asset classes. This can include some form of exposure to real assets . In the graphic from PIMCO featured towards the outset of this article, you will notice that, in addition to TIPS, the greatest forecasted returns over the next 10 years were featured as coming from REITs. I was happy to see this, as I include a measured weighting in REITs in my personal portfolio. What makes REITs intriguing to me is that they represent an asset class that is sort of partway between stocks and bonds. Their unique tax structure requires that they pay out at least 90% of their earnings in the form of dividends, making them in some ways similar to a bond. At the same time, a well-run REIT can also benefit from capital gains, as the value of the properties they hold can increase over time, making them in some ways similar to a stock. Based on this theme, in addition to my overall allocation for bonds and TIPS, I will include a modest additional allocation dedicated specifically to REITs in my model portfolio for 2016. Putting It All Together: The ETF Monkey 2016 Model Portfolio Based on everything that preceded it, here are the official asset allocations for The ETF Monkey 2016 Model Portfolio: Asset Class Weighting (%) Comments Domestic Stocks (General) 30.00 See Theme #2. Domestic Stocks (High Dividend) 5.00 I am going to include one ETF providing minor targeted exposure to high-yield securities, to help generate income for the portfolio. Overall, this brings my domestic stock allocation to 35%. Foreign Stocks – Developed 20.00 See Theme #2. Foreign Stocks – Emerging 7.50 See Theme #4. Foreign Stocks – Europe 5.00 See Theme #3. TIPS 15.00 See Theme #5. Bonds 10.00 REITS 7.50 See Theme #6. TOTAL 100.00 As I mentioned in the outset, look for further articles to follow. In these, I will reveal my choices for the specific ETFs with which to build this portfolio, from three different providers; Vanguard, Fidelity (with iShares funds), and Charles Schwab. Until then, I thank you for reading, and wish you… Happy Investing! Authors Note: If you like my work, I would be deeply indebted, and highly grateful, if you could be sure to follow me here on Seeking Alpha, as well as feature my work to friends, colleagues and/or relatives who may be interested in the subject matter. Other than the time you invest to read, there is no other cost for the work that I do. Your support will enable me to continue my efforts.