Author Topic: New portfolio. Thoughts?  (Read 5757 times)

bojangles

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New portfolio. Thoughts?
« on: October 01, 2013, 11:45:44 AM »
Hey all, I've been an MMM addict for the last month now and finally just joined the forums. I've been trading (day and swing) for about a year and a few months now but have started to focus more on saving instead of gambling. I just put together a new portfolio and I'm curious what other's thoughts are. It's meant to be a stable, steadily appreciating, long term portfolio that pays at least 4% in dividends YOY. So enough babble here's what it is:

40% IPE
40% JNK
10% VNQ
10% PEY

Yup, that's it, four ETFs. It solidly outperforms in a down market, but it definitely underperforms in a serious bull rally (like our current one)... So, what do you think?

pka222

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Re: New portfolio. Thoughts?
« Reply #1 on: October 01, 2013, 01:46:50 PM »
Bojangles- are you betting on an up coming down market? Otherwise why not VTSAX? - Only one index betting on the general trend of the market over long time periods?

bojangles

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Re: New portfolio. Thoughts?
« Reply #2 on: October 01, 2013, 01:51:52 PM »
Bojangles- are you betting on an up coming down market? Otherwise why not VTSAX? - Only one index betting on the general trend of the market over long time periods?

Not only am I betting on a large correction happening soon (within 1 year), but I am also betting on rampant inflation caused by QE once the money printing catches up. Either way, up or down, this keeps your money relatively safe for withdraw at any point in time. It's sort of a hybrid emergency fund/income stream. I've backtested it to 2008, it's pretty solid.

EDIT: Before I get flamed about the QE comment.... QE lowers interest rates and makes money easier to borrow and more enticing to borrow from private banks which leads to the "creation" of more money by more and more consumers borrowing money... which COULD lead to crazy inflation. So anyone can go ahead and say I'm wrong, but it's really all speculation at this stage in the game.
« Last Edit: October 01, 2013, 02:12:18 PM by bojangles »

iamlindoro

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Re: New portfolio. Thoughts?
« Reply #3 on: October 01, 2013, 02:58:48 PM »
I think my take on this is that if this portfolio is truly meant to be long term, then you are needlessly avoiding more volatile holdings like a total stock market fund, which over mustachian timeframes are stable and likely to appreciate much more than your portfolio (and in the case of VTSAX, still giving off a healthy 2% dividend too).

http://www.mrmoneymustache.com/2011/06/06/dude-wheres-my-7-investment-return/

beltim

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Re: New portfolio. Thoughts?
« Reply #4 on: October 01, 2013, 03:47:55 PM »
Not to pick nits too much, but my calculation for the yield on the portfolio is 3.9%.  I understand why you put the inflation-protected bonds in, but they lower your yield considerably.

Have you considered a preferred stock ETF?  That would fit your general criteria of outperforming in a down market, being generally safe, and producing a solid income stream.

KingCoin

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Re: New portfolio. Thoughts?
« Reply #5 on: October 01, 2013, 04:01:51 PM »
This is a tough one to bless. It might not be bad if you're 65 and looking to ride things out into the proverbial sunset.

The way this is setup, you're looking at earning inflation +1.5/2.5% over the long haul.  You're giving up a lot of long term return for short term stability. Additionally, you own 80%+ fixed income in a period where fixed income is still historically very rich.  If you're worried about inflation, equities will protect you over the medium to long term.

The 40% JNK strikes me as especially high. Guys like Swensen recommend a 0% allocation to High Yield, even in a more normalized rate environment.  The callability of most HY issues makes the negative convexity vs equities over the medium term pretty unattractive.

You're probably not going to get crushed in this portfolio, but I can envision decades of very mediocre returns, especially facing the headwinds of interest rate normalization. No crystal ball here, but I suspect that if you fast forward 10-20years, you'll regret this allocation.

bojangles

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Re: New portfolio. Thoughts?
« Reply #6 on: October 02, 2013, 06:01:10 AM »
Thanks for all the replies! I understand that over the long term, appreciation might not be that great, but as I mentioned it's also meant to be an emergency fund, where at any moment in time I may need to pull out all the principal. If the upcoming market correction is conducive with what has happened in the past, this will allow me to keep most of my principal in tact in case it does need to be pulled during a correction.

This is also not an "all my money" portfolio (I have a few), but more of a side savings.... I would consider this long term in the sense that I've been a day and swing trader for the last year haha so long term to me is 5 years + (medium term?). I guess for a real long term (15-20 years), I would have to go with something like VIG, or an array of the dividend aristocrats, selected and weighted based on highest yield, because that seems to be the best way to compound my gains (according to my backtesting, because I already have a portfolio for this as well).

As always, almost everything here is speculation. Backtesting almost never works to predict the future but I do it anyway.

eyePod

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Re: New portfolio. Thoughts?
« Reply #7 on: October 02, 2013, 06:05:03 AM »
This is how I feel when reading these threads


Seriously though, I'm 100% sure there will or won't be a correction on the market.  I know you were a day trader and getting down to 4 etf's is an improvement, but you have no clue what will happen in the next year.  Even if you had the perfect perception of what should happen, there could be some other crazy event that changes everything.

bojangles

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Re: New portfolio. Thoughts?
« Reply #8 on: October 02, 2013, 06:42:51 AM »
Well the market is somewhat cyclical and there will always be a correction. The only thing you can't predict is when it's going to happen or what's going to cause it to happen. So in this sense I am 100% sure there WILL be a correction, but 0% sure when it will happen. I said within 1 year because I study chart technicals every day... one thing that's plain as day is SPX hit resistance twice at the 1719 level. It may continue to test and eventually break out, but much more likely is it will test and retreat to the lower support at 1556. If it loses this support level it will undoubtably drop like a rock. This is all based on the assumption that the technical analysis I use for day trading works the same way on a weekly chart over 20 years...


KingCoin

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Re: New portfolio. Thoughts?
« Reply #9 on: October 02, 2013, 08:47:17 AM »
This is also not an "all my money" portfolio (I have a few), but more of a side savings....

Fair enough, but this basically makes your "portfolio" impossible to comment on. It's a little bit like asking for comments on a portfolio of Google stock and Facebook stock and then complaining that it's not my whole portfolio when I'm criticized for not being sufficiently diversified.

This is all based on the assumption that the technical analysis I use for day trading works the same way on a weekly chart over 20 years...

I doesn't work. If it did, the effect would quickly be arbitraged out.  You have any unbiased scientific papers to suggest otherwise (even in the short term)? (I realize that arguments about technical analysis can resemble arguments about the existence of God).

bojangles

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Re: New portfolio. Thoughts?
« Reply #10 on: October 02, 2013, 09:27:51 AM »
You're right, it does make it hard to comment on. Think of it this way though... if you have multiple accounts, a couple savings, Roth IRA, 401k, are you going to use the same investment strategy in every account? This would be my emergency fund allocation, as in a completely separate account from my other savings, my IRA and my 401k. This account has a separate risk appetite from the others. Maybe I should have opened with that information, or given more detail as to what I meant by "portfolio," and if so, I apologize.

Also, no, I don't have any unbiased scientific papers speaking on technical analysis. I learned from other traders and I actually have done moderately well... sometimes there are big wins and sometimes there are big losses. Averaged out I'm at about 25% return in one year from this "gambling." Sure, I could have just bought into an index fund or invested in solar energy and have MUCH higher returns in the same time frame, but I chose day trading because it was fun. But back to the actual chart... if you look at it you can see that the last two large downturns were from testing resistance (1556 level), retreating and losing support at the next lower level (1317 level). So yes, if you look closely you'll see that bearded man behind the clouds! haha

So, to rephrase the entire initial "Any thoughts?" question.... "Here is my emergency fund savings portfolio which is meant to do better than a savings account but not hold my entire investment strategy, so the principal could be used at any time in the event of an emergency. Any thoughts?"

tooqk4u22

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Re: New portfolio. Thoughts?
« Reply #11 on: October 02, 2013, 11:37:45 AM »
....... saving instead of gambling. I just put together a new portfolio and I'm curious what other's thoughts are. It's meant to be a stable, steadily appreciating, long term portfolio that pays at least 4% in dividends YOY. So enough babble here's what it is:

40% IPE
40% JNK
10% VNQ
10% PEY

Yup, that's it, four ETFs. It solidly outperforms in a down market, but it definitely underperforms in a serious bull rally (like our current one)... So, what do you think?


There is nothing wrong with using ETFs, but ummmm, how do I say it....your still gambling.

IPE currently provides a negative REAL return and if there is inflation then the best you will do is meet inflation and likely trail giving that you are going in negative.

JNK is nothing more than gambling and may not seem volatile but it is and if inflation occurs it will lead to a rise in rates and it will crush JNK.  See that JNK declined as much as S&P500 during the downturn...and recovered some but not all.  Also rates on these things are not worth it right now.  Time to buy junk is when rates are higher at the low point of the cycle, not now.

VNQ is rate sensitive but inflation supported given the unerlying real assets.

PEY is basically comprised of commonstock of those JNK offerings or large old stodgy companies that have little growth prospects but good recurring cash flow.

So the reality is that if you get an inflationary environment and therefore higher interest rates 40% of your portfolio will be flat (IPE), 40% will go down (JNK), 10% will initial go down and then rise later (VNQ), and 10% will decline (PEY).

You're right, it does make it hard to comment on.

Then what's the point.

Think of it this way though... if you have multiple accounts, a couple savings, Roth IRA, 401k, are you going to use the same investment strategy in every account?

Yes, I would use one single investment strategy with a specific AA. 

So, to rephrase the entire initial "Any thoughts?" question.... "Here is my emergency fund savings portfolio which is meant to do better than a savings account but not hold my entire investment strategy, so the principal could be used at any time in the event of an emergency. Any thoughts?"


Again, what is the point then?

KingCoin

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Re: New portfolio. Thoughts?
« Reply #12 on: October 02, 2013, 01:05:04 PM »
I think that as an emergency fund that pays you a little more juice than cash/equivalents, it's pretty good. It could drop 20% if things hit the fan of course, but presumably you can handle that.

bojangles

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Re: New portfolio. Thoughts?
« Reply #13 on: October 02, 2013, 01:09:28 PM »
The point is achieving rates better than a savings account while preserving the principal.... which is what it says in that sentence.