I love market days like this when stocks are down 1% plus but 2-3 of my ETFs are positive on the day. I also love knowing I don’t have to figure out or wonder what to do next because I already know what I am going to do. On 1/31/2015 I will work my 6th grade math and adjust positions accordingly.
In the interest of getting up to speed on this “6th Grade Portfolio” I want to discuss how I came to recommending these six ETFs for my January 2015 investments mentioned in the previous post. There are a few places online like here http://www.mebfaber.com/timing-model/ and here http://www.investingforaliving.us/ that I learned from and used to get a feel for this investing style. I use the GTAA strategy they discuss as the basis for my strategy with a few of my own rules thrown in. I have learned over time that one must eventually create their own investing style that suits their own comfort levels and risk tolerances.
We start every month with 13 different ETFs to choose from all representing different asset classes. We choose 6 of the 13 each month to achieve diversification. If you need to learn what an ETF is go here: http://www.investopedia.com/terms/e/ For a list of those ETFs please read my previous post.
Then using any charting service like http://www.freestockcharts.com I calculate each ETFs 1 month, 3 month, 6 month, and 12 month returns. Average those together and that’s where I get the “Average Returns” column in the previous post. Order them from highest average to lowest average return and voila you have the top 6 ETFs to invest in for the month. Provided the ETF in that top 6 is above its 200 day moving average (also obtained by looking at the stock chart) you buy 1/6 of your portfolio in each. Sometimes those top 6 will be the same top 6 as the previous month. In that case (as was this month compared to December) you do nothing, just continue hold the ones you already had. That’s the goal; to get into an ETF when it starts a reliable upward trend and as long as it stays in that trend it will stay in the top 6 and thus stay in the portfolio. You never have to make a prediction about where you think its going to go as the 6th grade math will tell you if you need to buy, sell, or hold. So the next time you hear someone predicting where the market will go you rest easy knowing that if it goes down you will get out and if it continues up you will stay in.
In summary, to execute this strategy you need to be able to read a chart, figure out averages and percentages. Like I said, so simple a 6th grader could do it!
Here is an example of a chart that I use. Its of the VGLT Vanguard Long Term Government Bond ETF and one of the best performers in the last three months.
I am just writing here for fun so if you have any questions or I missed something please feel free to point it out or ask. No ego here. In my next post I will discuss what to do when the strategy recommends a new purchase. I dont just jump in with both feet and buy, I wait until I get a signal (again obtained by reading the chart) before buying. This is one of my wrinkles on the basic strategy. This keeps me from over paying for an etf that is moving up quickly. I will also touch on risk and returns on a later post. Its important to know what to expect in terms of returns and its even more important to know what risk you are taking to obtain those returns. There’s no free lunch.