I didn’t remember exactly how I stumbled into the MarketRiders website. I guess 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 entirely (or almost completely). What makes MarketRiders different is that it provides asset allocation recommendations to its users and the ETF instruments suitable for them based on the asset recommended. Sophisticated investors may customize their portfolio for a modest price (some eight 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 market index, an ETF-based portfolio 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 customize their ETF portfolio inexpensively, coupled with a user-friendly interface.
I tried its free service and chose the ‘Advisor’ method to create my first portfolio. The site threw several questions about age, investing period, 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 real and virtual portfolios. The benchmark portfolio began its tracking on 23 September 2008. Starting with US$ 9,984.29 of initial investment, the benchmark has lost US$ 320.56 year-to-date on 26 September 2008 (or 3.2% loss in just three days). The S&P 500 had gained 2.1% for the same period, although this is arguably a short-term observation and should not be considered for the 10+ years investment period.