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When stocks went down, the value of your bonds went up. During the same period, the total bond market rose 5. That investment truism died earlier this year. Some would say it died earlier than that. Since Jan. Tune into some of the talking heads to hear the list of lamentations. But in the first quarter of this year, the Vanguard total stock market index declined by 5. Nothing has improved since.

So, when the paddy wagon came, it took the bonds too. If interest rates rise, as most expect, bond prices will drop. Does this mean bonds are dead? Barely alive and losing ground. You can understand this with a quick lesson in bond pricing.

If you want to sell your bond, it will have to be priced to provide the new investor with a 4 percent yield. Exactly how much the price has to go down depends on how long you are stuck with the lower yield on the old bond. Making sense of asset classes — domestic, global or both Aug. What are they? Matching asset classes to specific mutual funds or exchange-traded funds and their tickers is often more challenging than it should be.

A: There are six fundamental asset classes: domestic, international and emerging markets stocks and domestic, international and emerging markets bonds. The rest of the developed world accounted for 39 percent. Emerging markets accounted for 14 percent. Needless to say, there are many ways to slice these broad asset classes into smaller, but still large, segments with different risk and return properties.

Real estate is an additional asset class that has been shown to reduce risk and raise portfolio returns. You also can divide stocks into small capitalization and large capitalization or growth and value. Are all these distinctions meaningful?

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Charles Schwab has 16 index funds, including 2 fixed income equity funds. Before you get all excited about the number 16, some are just larger purchase minimum versions of the same fund. So you can Couch Potato at Schwab for 0.

Basically, only Vanguard and Schwab are in this game. Merrill Lynch offers 8 index funds, of which 2 are fixed income. Morgan Stanley offers 16 index funds, none of which are fixed income. Good for them. Quite silly for you. Fortunately, there is an end run for those with relatively large accounts who want to establish a core of indexed investments. To get the fixed income index, buy iShares Lehman Treasury Index, an approximation of the intermediate term Treasury market ticker: IEF, expense ratio 0.

Measure the ETFs against index mutual funds that cost 0. Think of it as the Universal Couch Potato Portfolio. And you can build it anywhere investments are sold on commission. If you move clockwise around the portfolio, you can see an order of adding assets that is typical of many lazy portfolios:.

My purpose in this article is to outline a framework for designing and building dividend growth portfolios for couch potatoes. Please note that these are not asset-allocated modern portfolio theory [MPT] portfolios. They contain no bonds. They only contain stocks. In my own dividend growth investing, I focus not on total return, but rather on growing my portfolios' cash flow toward an eventual long-term target amount of income.

The idea is that I will eventually live off that income in retirement. Before we get started, I need to insert a note on what is known as "smart beta. It lays out the foundation - both academic and non-academic - behind smart beta funds.

In a nutshell, smart beta employs "factors" believed to enhance returns. Smart beta often weights portfolios to "tilt toward" the factors rather than using traditional weighting by cap size. Note that equal-weighted portfolios automatically create a tilt toward smaller cap stocks. Dividend growth itself is one enhancement factor, recognized in the fund industry but not academically.

Thus, dividend growth exists automatically in all of the ETFs used here. Other factors typically include:. I constructed the following table to show the vital statistics of the largest 20 such funds. Of course, many ETFs beyond the have dividend yields, but they are not designed specifically for dividends nor marketed that way. There are countless recipes one could follow in constructing dividend growth portfolios for couch potatoes.

What I have done here is try to follow the general model described earlier, again noting the obvious exception that these portfolios will contain no fixed income components. The usual approach is to have two "core" components to cover the field generally. Or, one can add other components to pick up factors or themes that one wants. In the lazy portfolios that I looked at, themes such as REITs, foreign, and small cap size were often among the first added to the core funds.

The number of funds generally ranges from two to Once you get past that point, it is hard to say that it's simple any more. I will stop at five funds. The data in this article has been sourced from Morningstar, ETFdb. I offer two 2-ETF portfolios. I would consider either of these as basic core starter kits for lazy dividend growth investors. My first portfolio consists of the only two dividend funds that I myself invest in.

I chose these after quite a bit of research into my own needs and goals. I have confidence in them, but note that they are both relatively new and have not existed through a bear market or recession. I used the Morningstar Portfolio X-Ray to pull a few stats about this portfolio.

First, the portfolio is unsurprisingly heavily tilted toward large-cap value stocks. The figures show the percentage of the total portfolio that are in each portion of the style box. This graphic shows the breakdown of holdings using Morningstar's classifications of Supersectors Cyclical, Sensitive, and Defensive and sectors.