“Low-vol stocks have performed about as well as market, but with one-third less volatility over since 1930s,” Lee said. “Low-vol stocks tend to have above-average dividends.”
“I think U.S. equities are overvalued, trading among the highest price-to-earnings value out there,” he added.
Lee provided a standard portfolio model with 30% in Vanguard Total Stock Market ETF (NYSEArca: VTI), 30% in VanguardFTSE All-World ex-US ETF (NYSEArca: VEU) and 40% in Vanguard Total Bond Market ETF (NYSEArca: BND). All in all, the portfolio comes with a real yield of 1.35% and an average expense of 0.11%.
Investors can make more valuation-conscious tilt toward income by including low-volatility and dividend Europe and emerging market equities and lowering exposure to Treasuries. For instance, Lee suggests an income-tilted portfolio with Vanguard Total Stock Market ETF (NYSEArca: VTI) 15%, PowerShares &P 500 Low Volatility (NYSEArca: SPLV) 10%, VanguardFTSE All-World ex-US ETF (NYSEArca: VEU) 15%, iShares MSCI EAFE Min Volatility (NYSEArca: EFAV) 10%, WisdomTree EM Equity Income (NYSEArca: DEM) 10%, iShares MSCI EM Min Volatility (NYSEArca: EEMV) 10% and PIMCO Total Return ETF (NYSEArca: BOND) 30%. The portfolio comes with an average 2.47% yield and a 0.33% expense.
If you crave added yield, Lee suggests adding the PIMCO 0-5 Year High Yield Corporate Bond Index (NYSEArca: HYS) as it holds short-duration and higher quality speculative grade, or “junk” bonds.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.