Hey, I’m Doing A Thing

I can’t get enough of ETFs. The new ideas and innovations are going hyperbolic. John Bogle is rolling in his grave as the classic 60/40 allocation for retirement planning goes the way of the dodo bird.

Sure, there are some crazy ideas of “ETF Hot Sauce” and “Boomer Candy”, affectionately coined by Bloomberg’s Eric Balchunas. But, when I research outside of traditional core equity and bond ETF asset classes, I find a new wave of ETF strategies that is changing the way financial advisors and self-directed investors will construct retirement accounts in the future.

Recap

I’ve been a registered financial advisor since the 1980s. In the early 2000s, I researched ETFs and allocated into them for clients. In 2005, I launched ETFTrends.com. In 2019, we merged with Tom Hendrickson and the team at ETFdb.com. We were acquired by Aretex Capital, a private equity firm in 2021, and this new entity evolved into VettaFi which was sold to TMX Group (Toronto Stock Exchange) early this year.

Today’s Portfolio Construction

We lucked out with the timing of this deal. The last time rates were this high and declining was almost twenty years ago. At the same time, growth prospects for equities tend to be favorable during times of declining rates and small-cap and international stocks have been undervalued for a while. I had three investment buckets to address:

• Short-Term Cash: We have a tax bill coming next April but I’ve been able to put that piece to work in short duration ETFs. Some innovative ETF issuers have been able to enhance income by 100-200 basis points over Treasury yields by buying out of the money options.

• Maximizing Income: Traditional corporate and high-yield bonds pay a little more than the traditional short duration ETFs, but are in line with the enhanced income short duration strategies. I looked deeper into the options overlay strategies that produce higher income streams while pegging the underlying to a traditional index like the S&P 500 or the Nasdaq 100. Yields range from 8-12% and some of this income gets treated in a tax advantaged way.

• Long-Term Growth: I’m no spring chicken, but I plan to be around a while. Equity investing will always be a part of the portfolio allocation. Even if we get hit by a bus, the kids get the money with a stepped up cost basis. Outside of some crypto, I’m not a stock jockey with the battle scars to prove it. Both index and active equity ETFs will continue to round out the portfolio over time.

Here’s What I Learned

• I love the ETF business and I am staying involved. (Here’s my take on retirement)

• There are always new ETF strategies that can help diversify the portfolio and add to long-term returns, but very few changes will be needed along the way.

• There are brilliant people at the helm of this innovation. I can help them educate investors, advisors and institutions on the benefits of these exciting strategies. Investing in some of these people and helping them grow is my new pickleball (press release).

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