- Asset allocation is at the heart of any portfolio, how you weight your asset allocation is over half of your risk and returns over time.
- ETFs are the best vehicles for building an asset allocation due to low cost ability to use to overweight favored asset classes and groups.
- Global Trends ETF monthly report helps you keep your core or entire portfolio asset allocation in line with secular and cyclical trends.
- Incorporating an easy to understand “slices” concept.”
- Remember, scale in and scale out slow, except on big correlated market moves where you will move faster.
If you are using ETFs for part or all of your entire portfolio, then Global Trends ETF or Retirement Trends ETF is for you. With Global Trends ETF, you can find an easy way to invest into this generation of secular trends in an easy to use “slice” format.
What Is A Slice?
A slice is a portion of your portfolio that you want to fill in. Think of it as a slice in your portfolio pie.
Your ETF portfolio will have 3 slices:
- Cash Holdings
- Core Holdings
- Tactical Holdings
Each slice plays a specific role in your portfolio. Let’s look.
Your Cash Slice
Your first decision is how much cash to hold at any given time. This is your most important decision as it impacts both risk and reward.
- Higher cash levels act as a hedge against risk.
- Higher cash levels reduce potential return.
In general, you want to have low cash levels, however, in times of market turmoil, you will want to have higher cash levels for a short period of time, generally 2 years or less.
Here is an example of how to determine your cash slice:
|Investor Nature >>>||Aggressive||Moderate||Defensive|
|Long-term Cash % Range||2-20%||5-40%||10-60%|
|Current Level||10% falling||20% falling||40% falling|
Your investment nature does not change with the markets. Rather, we simply try to increase or decrease our cash holdings depending on markets within the construct of our investment nature.
So, it is important that you understand your own nature. That will require a look at your finances, goals and emotions.
Ultimately, being unemotional when investing is important. That makes a sincere emotional self-evaluation important.
If you panic when your account is falling, then you want to compensate by having a plan that is probably a little heavier in cash as a rule, i.e. defensive investor, and requires less trading, i.e. more core holdings and fewer tactical holdings. Let’s look at core and tactical holdings concepts.
Your Core ETF Slice
Core ETF holdings are typically diversified or broadly aimed at the biggest secular trends. As always, we try to manage expenses. These ETFs require very little management over time. This is where you will find diversified large cap and mid-cap ETFs, i.e. market cap based investing.
Other than those periods where you are raising your or lowering your cash slice holdings, your Core ETF holdings will not change much.
When deciding how much to put into your core ETF holdings, you will start with your investment nature, i.e. aggressive, moderate or defensive. Defensive investors will often only have cash and core slices, foregoing a tactical slice.
We can build a Core ETF Slice with only several ETFs. At the heart of this core is a big slug of technology related stocks as tech is now about half of the economy.
Here is what a sample Core ETF Slice looks like:
|ETF Equities||Symbol||Slice Allocation %|
|Invesco QQQ – &/or –iShares Evolved Technology*||(QQQ)(IETC)*||50|
|Invesco Midcap Momentum**||(XMMO)||20|
|First Trust Nasdaq Clean Energy||(QCLN)||6|
|Emerging Markets Internet & Ecommerce||(EMQQ)||6|
|Closed End Real Estate Fund -or – Build Your Own REIT Basket#||—||6|
The total allocation percentage will always add up to 100% as it is for the Core ETF slice only.
If you were putting 50% of your money into Core ETF holdings, then your total portfolio holdings in each of the ETFs would be half the percentages shown above. For example, if you were putting 50% of your money into Core ETF holdings and QQQ represents 50% of the Core Slice, then you would have 25% of your total portfolio in QQQ, i.e. 50% x 50% = 25%.
Your Tactical ETF Slice
Tactical ETFs are typically NON-diversified. This is where we find our sector, industry, regional and single-nation ETFs.
How much you put into your Tactical ETF slice depends on your nature and how much you want to trade. Generally speaking, if you are defensive by nature, then do not trade tactically.
Tactical trading is for aggressive and moderate investors. Aggressive investors might put 75% of their money into the Tactical ETF slice, while a moderate investor might be 25% or 50% tactical.
Here is what a sample Tactical ETF Slice looks like:
|ETF Equities||Symbol||Current Growth Allocation %|
|Invesco Wilderhill Clean Energy||(PBW)||20|
|SPDR Energy Select||(XLE)||40|
|ARK Genomic Revolution||(ARKG)||10|
|AdvisorShares Pure Cannabis or Pure U.S. Cannabis||(YOLO) or (MSOS)||5|
|VanEck Vectors Digital Transformation||(DAPP)||20|
The total allocation percentage will always add up to 100% as it is for the Tactical ETF slice only.
My Trade Alerts
My trade alerts go out when I make a move in a client portfolio. I have 8 different client types I am managing now:
- Global Trends ETF
- Retirement Trends ETF
- Sustainable Growth Stocks
- Sustainable Growth Stocks with ETF Slice
- Retirement Dividend Income
- Retirement Dividend Income with ETF Slice
- Retirement Income Options
- Retirement Income Options with ETF Slice
In addition, I am doing Halal versions of some of these.
So, there is an opportunity to see plenty of trade alerts.
You are managing your own money, so consider how trades fit into your slices. The trade alerts may or may not apply to you. To steal a phrase from younger folks, “you do you.”
Also, in the same vein, you don’t need to wait for my trade alerts. If you know the direction you want to go, then move in that direction by slowly scaling in if prices are in or very near our buy zones.
Closing Investment Quick Thought
By creating 3 basic slices for your ETF portfolio you can make your job as a do-it-yourself investor a lot easier. If you also want to buy stocks, then just add another slice for stocks. If you want crypto, add a crypto slice.
Most importantly, by creating slices or sleeves in your portfolio with loosely defined sizes, you can more easily manage your risk. Ultimately, risk management is at the heart of investing and using this approach can help you with that.
Do not fall into the trap of “cash is trash.” Cash is an asset class that deserves respect. The U.S. Dollar was a top performer in 2022 and is a great tool to buy cheap assets. Bottom line, cash is a great hedge in times of turmoil and, unlike shorting, does not require precision trading skills.
When building your portfolio, I once again remind you, generally invest in line with the secular trends. That is where the big tailwinds are:
If you have questions, about portfolio construction, trade sizing, reading a chart, whatever you are wondering about, go to the chat and ask me with an @KirkSpano post. I will do my best to help out.