Retirement Strategy Portfolio – ETF Selection Process – Overview and Introduction

I have spent numerous hours researching ETF’s to include in our model portfolio.  As Mark has shared in other posts, we are using the “Three Bucket” approach recommended by Christina Benz with Morningstar.  In her articles, she includes investments for the three buckets for a moderate and aggressive portfolios.  If you are interested in the articles and unable to find them based upon Mark’s previous posts or doing Bing or Google searches, let me know and I will gladly share.


I looked closely at the investments included in Christina Benz’s articles and selected other ETF’s (not the mutual funds she lists) to build my initial three bucket portfolio.  Perhaps in another post, I will share what the model produced with this selection and what my returns have been, but I will not chase that rabbit in this post.


Mark and I virtually attended an AAII seminar by the Cleveland chapter in which George Dagnino  (Dag) was the presenter. This started this adventure of combining the 3 bucket approach with Dag’s use of the 200dma and other economic factors for deciding when to BUY/SELL.   


Side note – I am grateful to have had the pleasure of being the “research assistance” and working with Mark.  It has given me something fun to do during these cold, pandemic days of early retirement.  


My efforts have been centered on picking ETF’s to include in buckets 2, 3 and 4.  As Mark communicated in another post  – “…Bucket #2 is Fixed Income, Bucket #3 is Income producing Equities, and Bucket #4 are capital gains focused Equities”.   


An initial portfolio was a list of Kiplinger’s “ETF 20 at a Glance” published in September of 2020.  Similar to Christina Benz’s list of investments, as I dug further, there appeared to be better  options.  Having made that statement should raise a flag since Benz with Morningstar and Kiplinger have trained professionals and do this as their business.  I am an individual investor.  So, if you stop reading now, I won’t be offended!


Charles Schwab was my primary source for screening ETF’s for this buckets.  I used them because of the various filters available, the “Compare to Similar” capabilities and being able to export the screens into Excel to filter more closely.  Whether it was Benz, Kiplinger or screens from Schwab, I also always did a compare to similar when on the ETF’s I selected to see if there was another ETF that looked better. 


I will get into specific criteria for the ETF for each bucket later and in separate posts.  For all ETF’s for all bucket’s, in order to reduce the candidates from 100’s to a shorter list, we took into consideration:

  1. Average Trading Volume – anything less than 100,000 was eliminated because when it comes time to sell, there needs to be the volume to be able to sell.
  2. Expense ratio – anything greater than 1% was eliminated because there are solid ETF’s from which to chose with expense ratio’s much lower.  When it came down to 2 ETF’s in a specific class of ETF in a bucket (e.g. Small Cap Value), the expense ratio often tipped the scale.
  3. Overall Morningstar Rating – anything rated a 1 or 2 stars was eliminated
  4. Morningstar Historical Returns –anything low (1 star) or below average (2 stars) was eliminated
  5. Morningstar Historical Risk –anything above average (2 stars) or high (1 star) was eliminated

Other criteria were applied to other buckets (e.g. Distribution Yield for Buckets #2 and #3) and I will share them in posts about the ETF’s selected for each bucket.


For diversification, we attempted to include a mix of fund category classifications in each bucket and pick the “best in class” in each category in each bucket.  Again, I will share the fund categories in the posts for each bucket.


Once the short list was prepared, the ETF’s within that bucket were looked at for “Asset Correlation” within that bucket using  We wanted to have ETF’s within a bucket that were not closely correlated and specifically, if two ETF’s had a correlation greater than .7, we removed one and looked for another that was not. 


This is an introduction and an overview of the high-level process.  Be on the look out for posts about the selection of ETF’s for each bucket.

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