Can AI chatbot Bard help you build a Stock Portfolio with ETFs? Hint – Absolutely!

 

Sid: I have created a correlation matrix with this year's weekly closing prices of the various sector Exchange Traded Funds (ETFs). Can you assist me in building two portfolios, one for Aggressive Growth and one for Value and Balance? From the following table and other online sources, please also consider the relevant fundamental and technical data such as total assets, yield, PE ratio, YTD return, expense ratio, beta, standard deviation, 200-day moving averages, 100-day Stochastic and RSI, etc. However, please limit the ETFs to those already included in the matrix.

Bard: Sure, I can help you build two portfolios, one for Aggressive Growth and one for Value and Balance. Here are my recommendations:

Aggressive Growth Portfolio

·       QQQ (100%)

The QQQ is a technology-focused ETF that tracks the Nasdaq-100 index. It is one of the most popular ETFs in the world and has a long history of outperforming the broader market. The QQQ is a good choice for investors who are looking for aggressive growth and are willing to tolerate some risk.

Value and Balance Portfolio

·       BND (30%)

·       GLD (10%)

·       XLP (20%)

·       XLV (40%)

The BND is a bond ETF that tracks the Bloomberg Barclays US Aggregate Bond Index. It is a good choice for investors who are looking for income and stability. The GLD is a gold ETF that tracks the price of gold. It is a good choice for investors who are looking for a hedge against inflation or other economic uncertainties. The XLP is a consumer staples ETF that tracks the performance of a basket of consumer staples stocks. It is a good choice for investors who are looking for a defensive play in the event of a market downturn. The XLV is a health care ETF that tracks the performance of a basket of health care stocks. It is a good choice for investors who are looking for exposure to a growing sector of the economy.

These are just my recommendations, and you should ultimately decide which ETFs are right for you based on your individual investment goals and risk tolerance. I would recommend doing some additional research on the ETFs you are considering before making any investment decisions.

Sid: Wouldn't adding XLI to the Aggressive Growth portfolio be a good idea? It's highly correlated with QQQ, so they can move together and increase growth when the tech market rises.

You are correct that XLI is highly correlated with QQQ, so adding it to the Aggressive Growth portfolio could increase growth when the tech market rises. However, it is important to remember that correlation does not equal causation. Just because two assets are correlated does not mean that they will always move in the same direction. There is always the risk that one asset could outperform or underperform the other.

In the case of XLI and QQQ, there are a few factors that could cause them to diverge in price. For example, XLI is more heavily weighted towards large-cap tech stocks, while QQQ is more diversified across the tech sector. This means that XLI could be more sensitive to changes in the price of large-cap tech stocks. Additionally, XLI is a price-weighted index, while QQQ is a market-cap weighted index. This means that XLI could be more volatile than QQQ, as it is more sensitive to changes in the price of the largest tech stocks in the index.

Overall, adding XLI to the Aggressive Growth portfolio could increase growth when the tech market rises. However, it is important to remember that there is always the risk that XLI could underperform QQQ. If you are considering adding XLI to your portfolio, I would recommend doing some additional research on the ETF and its underlying holdings.

Sid: Regarding the Value and Balance portfolio, your suggested investments are BND, GLD, XLP, and XLV, but they all seem to have a high level of correlation. The entire portfolio may be negatively affected if the market takes a sudden downturn. On the contrary, to provide some protection, shouldn't you include a 20-25% hedge comprising a few ETFs that are either negatively correlated or uncorrelated? Typically, investors who opt for these portfolio types are elderly individuals who are more risk-averse. What are your thoughts on this?

Bard: You are correct that the Value and Balance portfolio is relatively concentrated and could be negatively affected if the market takes a sudden downturn. This is because all of the ETFs in the portfolio are correlated to the broader market, so they are all likely to move in the same direction when the market is volatile.

To provide some protection against market downturns, I would recommend adding a 20-25% hedge to the portfolio. This could be done by including ETFs that are negatively correlated or uncorrelated with the broader market. Some examples of negatively correlated ETFs include:

• ·   SHY: This ETF tracks the iShares 0-5 Year Treasury Bond ETF, which invests in short-term US Treasury bonds. Treasury bonds are typically considered to be a safe haven asset, so they tend to move in the opposite direction of the stock market when there is a market downturn.
• ·   VIXY: This ETF tracks the CBOE Volatility Index (VIX), which is a measure of expected volatility in the US stock market. When the VIX is high, it indicates that investors are expecting a market downturn. Therefore, an investment in VIXY could provide some protection against market downturns.

It is important to note that no investment is completely safe, and even negatively correlated ETFs can lose value in a market downturn. However, by adding a hedge to the Value and Balance portfolio, you can help to reduce your risk and protect your investment in the event of a market downturn.

I would also recommend doing some additional research on the ETFs you are considering before making any investment decisions.

Here are some additional factors to consider when making this decision:

• ·  Your investment goals: If you are looking to reduce risk, then you may want to use less correlated ETFs in your balanced portfolio.
• ·  Your risk tolerance: If you are comfortable with taking on more risk, then you may be okay with using more correlated ETFs in your balanced portfolio.
• ·  Your time horizon: If you are investing for the long term, then you may be less concerned about short-term fluctuations in the market. This means that you may be okay with using more correlated ETFs in your balanced portfolio.

It is important to do your own research and consult with a financial advisor before making any investment decisions.

Data Sources: Yahoo Finance and Barchart

Note: All conversations here are unedited. E&OE.

Note: Bard is a registered trademark of Google.