Introducing the PFE: LAB TEST

Today, we are excited to announce a new addition to our website / blog – We are using a “lab test” sample investment portfolio that will be used for entertainment purposes to track the MTD/YTD performance of the markets.

We are excited to announce today that we are going to use a sample investment portfolio that we call our “LAB TEST” in order to model and track the market performance. We will be able to use this example portfolio moving forward and adjust for different conditions – Let us show you what is possible.

Additional background information is available on what types of ETF funds are available and why you should consider them – https://personalfinanceexperiment.com/2020/03/02/investment-losses-do-you-need-a-market-shock-absorber/

Note: This is an example portfolio to be used for educational and informative purposes only and should not be relied upon for legal or professional investing advice – As your individual circumstances are different, please contact your investment advisor before implementing anything you read here.

Photo by Chokniti Khongchum on Pexels.com

With that introduction complete, let’s set some ground rules for this portfolio:

First, this portfolio will be based on exchange traded funds (ETF) in order to promote accessibility and low transactional costs vs directly investing in individual stocks. Read about exchange traded funds here – ETF
Second, we are avoiding individual stocks as this will increase the risk profile of our sample. Additionally, we are not recommending individual stocks for long term investing; individual stocks are more geared to investment speculation – We will avoid this aspect.
Third, using ETF funds will also keep the Lab Test accessible to people all around the world and in other financial markets – They can easily adapt or substitute these sample ETF funds for locally available substitute funds from their own local stock market market.

PFE LAB TEST – Introduction

Now that we introduced our lab test, which fund type (ETF) we are going to invest in (avoiding individual stocks, real estate and bonds directly), let’s now introduce our sample portfolio asset allocation.

Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor’s risk tolerance, goals and investment time frame.^[1] The focus is on the characteristics of the overall portfolio. Such a strategy contrasts with an approach that focuses on individual assets.
https://en.wikipedia.org/wiki/Asset_allocation

Now we know our investment type ETF and we will be following the asset allocation strategy instead of individual assets – What’s next?

Asset Allocation

Now we must choose an asset allocation that will represent our investment goals – Our overall approach to stock market investing. There are many, many approaches to asset allocation – These are based on your individual risk tolerance: Do you want a portfolio that lives on the bleeding edge of the markets or one that barely moves with good or bad news. This is a deeply personal matter – We recommend you visit an asset risk profiler, like this one from Vanguard to determine your own personal risk tolerance – https://personal.vanguard.com/us/FundsInvQuestionnaire.

PFE LAB TEST – $10k Sample Portfolio

40% USA Market ETF
20% International Market ETF
20% REIT (Real Estate) ETF
10% Bond ETF
10% Local (Home) Country ETF
Subtotal = 100%
Note: We are not holding cash in our sample portfolio – Cash currently yields <1% in any available accounts; cash and dividends will be fully invested.

Now that we have introduced the sample portfolio allocation, let’s add some sample ETF funds to help make up these percentages – DO YOUR OWN HOMEWORK HERE – we are not advocating for or paid by any of these funds used in our example.

40% USA Market ETF = (10% VOO, 10% VTI, 10% VUG, 5% VCR, 5% VBK)
20% International Market ETF = (10% VYMI, 10% IDV)
20% REIT (Real Estate) ETF = (10% VRE.TO, 10% VNQ)
10% Bond ETF = (5% BND, 5% VGIT)
10% Local (Home) Country ETF = (5% VDY.TO, 5% XFN.TO)

Initial Investment – June 2020

Now, let’s begin on June 1, 2020 with $10,000.00 (+$1,000.00 monthly) of these funds and track them over the course of monthly, quarterly and complete 2020. FX rate used was 1 USD = 1.32 CAD.

10% VOO = $1,000.00 or 3 shares at $293.66 USD each
10% VTI = $1,000.00 or 6 shares at $161.90 USD each
10% VUG = $1,000.00 or 5 shares at $199.80 USD each
5% VCR = $500.00 or 2 shares at $203.65 USD each
5% VBK = $500.00 or 2 shares at $202.16 USD each
10% VYMI = $1,000.00 or 18 shares at $54.43 USD each
10% IDV = $1,000.00 or or 36 shares at $27.36 USD each
10% VRE.TO = $1,000.00 or 47 shares at $27.67 CAD each
10% VNQ = $1,000.00 or 12 shares at $84.69 USD each
5% BND = $500.00 or 6 shares at $87.33 USD each
5% VGIT = $500.00 or 7 shares at $69.86 USD each
5% VDY.TO = $500.00 or 21 shares at $31.47 CAD each
5% XFN.TO = $500.00 or 19 shares at $34.60 CAD each
CASH = $391.93 USD (to be used for float; rounding shares)

Conclusion

In this ongoing series, we will continue to dive into each of the funds selected, break them down and work on the overall impact of each within the portfolio – In this introduction, we wanted to help you understand that the best way to get invested is to do it – NOT OVER ANALYZE, BUT GET STARTED – As the saying goes, “it’s not timing the market, but time in the market”.

We hope you liked this introduction to our PFE – Lab Test. Provide your feedback below and in the comments – Please like and subscribe.

Regards, The Lab Manager.

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If you want to support our efforts at http://www.personalfinanceexperiment.com, please leave a comment, hit the like button and subscribe to the blog.

Also, if you like what you read – Please consider supporting us with a coffee – https://www.buymeacoffee.com/PFExperiment