An ETF Portfolio for Both Yield and Safety

How can you find yield and safety in today's Zero Interest Rate Environment?  That is the question retirees and many others are asking?  Conventional wisdom says "You can't . . . the only safety is in cash or treasuries." Historically that has indeed been the case.

However, the U.S. government is currently doing everything possible to keep rates low, and of course we all know you can't fight the Fed.  First the Fed drove down short term rates to zero.   Now, they are targeting longer maturities.  This is a war on savers!

So, are cash and treasuries truly safe?  Considering the U.S. debt situation the short answer is: "no."  Remember deflation and even stagflation is the fixed income investor's friend --  your dollar buys more.  If inflation or currency devaluation occur you do not want to be caught long bonds!  Governments almost always print their way out of a debt crisis, igniting inflation.   The portfolio below, however, provides inflation protection in addition to yield.

The portfolio consists of 7 ETFs and has a yield (equally weighted) of 5.67% and shows a 29.7% YTD gain. Compare this to SPY's 2% yield and 1% YTD gain.  Also, remember, since we are talking ETFs you greatly eliminate corporate or individual sovereign risk.

•  .EMB Emerging Market Bonds (4.7% yield, 15.5%YTD return)
•   LQD  Investment grade Corporate Bonds(4.7% yield, 8.6% YTD return)
•   JNK  High Yield Bonds -- aka junk bonds (9.7% yield, 37.7% YTD return)
•   DGS Small Cap Dividend Emerging Markets (4.8% yield, 83.2% YTD return)
  
•   PEY  High Yield Dividend Achievers (4.3% yield, 3.6% YTD return)
•   IFGL  International Reit (9.5% yield, -3.5% YTD return)
•   VPU  U.S. Utilities (3.8% yield, 11.3% YTD return)

Depending on your particular situation you could over or under weight individual ETFs.  Think a big crash is coming?  Maybe stay away from JNK.  Think Emerging markets will prosper?  Overweight DGS.  Already own substantial real estate?  You could stay from IFGL.  Talk to your financial adviser before investing.

A few comments:  JNK is probably the riskiest.  Yet, hi-yield bonds have strongly out performed the supposedly safer SPY over the last year.  DGS, PEY, IFGL, and VPU  have real assets and provide inflation protection and growth potential in addition to yield.  All but IFGL show positive growth over the past year,  prospering in today's dis-inflationary environment. Strong emerging market exposure minimizes risk to heavily indebted developed countries.

Sure, you can hide out in cash and treasuries but you miss the income and capital appreciation potential of the above portfolio plus you run a significant risk of currency devaluation or inflation.  Hiding in a fox hole may only get you buried some day, maybe some day soon.

Again, investors should do their own research and consult with their own financial adviser before acting on any thoughts expressed here.