Yes, You Can Supercharge Your Portfolio! by Ben Stein

Author:Ben Stein
Language: eng
Format: epub
Publisher: Hay House
Published: 2000-01-01T00:00:00+00:00

The first thing we notice is that the three components of the portfolio—the total U.S. stock market, the EAFE index, and the emerging market index—all have high correlations to the performance of the whole group. This is a sign that the portfolio is ripe for improvement.

As we scan down the list of the funds we’ve added, the general idea is to toss out the ones that have the highest correlations and keep the ones that have the lowest correlations to the portfolio, at least as an initial screen. We see that commodities (^DJC), gold (VGPMX), energy (IYE), utilities (IDU), Malaysia (EWM), and commercial real estate (ICF) all have correlations of less than 0.70 to the portfolio. Since gold and energy are subspecies of commodities, we’ll just use commodities for the broadest bet, since it also has the lowest correlation of the bunch.

Next, we chopped the Apple Pie allocation down to 80 percent of its previous size to make headroom for the supercharger. We experimented with adding different funds, first singly and then in combination, and looked at how different amounts changed the expected risks and returns. After some trial and error, we decided to add 5 percent each of commodities, utilities, Malaysia, and REITs. The resulting portfolio looks like Figure 5.2

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