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    Friday, September 26, 2008

    Market Riding

    I didn't remember exactly how I stumbled into MarketRiders website. My guess is that I saved the link when I browsed through Seeking Alpha's RSS newsfeed. I'll tell you more about Seeking Alpha some other time, let's get back to MarketRiders.

    The premise behind MarketRiders wasn't new. It was based on the idea of allocating your investment assets (asset allocation) by using ETF (Exchange Traded Fund) instruments completely (or almost completely). What make MarketRiders different is because not only it provides asset allocation recommendation to its users, but also the ETF instruments suitable for them based on the asset recommended. Sophisticated investors may customised their portfolio further, for a modest price (some 8 bucks a month).

    With the myriad types of ETF currently traded, it is highly possible to construct a 100% ETF-based portfolio (see here for an article). And since most ETFs are constructed based on a form of market index, an ETF-based porfolio is expected to mimic the market return (index investing), hence the name, MarketRiders. Mitch Tuchman, the founder of MarketRiders, has developed the idea further by enabling the general public to custom design their ETF portfolio in an inexpensive way, coupled with a user-friendly interface.

    I tried its free service and chose the 'Advisor' method to create my first porfolio. The site threw several questions such as age, investing time span, investing experience, and risk tolerance. Based on my answers (twenty-something years old, 10+ years until I need the money, extensive experience, and moderate risk tolerance), MarketRiders came up with a suggested portfolio like this:
    • 40% US Equities, represented by Vanguard Total Stock Market ETF (ticker: VTI).
    • 25% World (non-US) Equities, represented by Vanguard FTSE All-World ex-US ETF (ticker: VEU).
    • 12.5% Bonds, represented by 5% SPDR Lehman 1-3 Month T-Bill ETF (ticker: BIL) and 7.5% Vanguard Total Bond Market ETF (ticker: BND).
    • 10% Real Estate, represented by DJ Wilshire REIT ETF (ticker: RWR).
    • 7.5% Inflation-linked US Bonds, represented by iShares Lehman TIPS Bond ETF (ticker: TIP).
    • 5% Commodities, represented by 2.5% PowerShares DB Precious Metals ETF (ticker: DBP) and 2.5% iShares S&P Global Energy ETF (ticker: IXC).
    I intend to use the suggested portfolio as a benchmark against my own portfolios, real and virtual alike. The benchmark portfolio began its tracking on 23 September 2008. Started with US$ 9,984.29 of initial investment, the benchmark has lost US$ 320.56 year-to-date in 26 September 2008 (or 3.2% loss in just 3 days). For the same period, S&P 500 had gained 2.1%, although this is arguably a short-term observation and should not be considered for the 10+ years investment time span. We'll review it again in the next quarter at the earliest.

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