Model Portfolios Q4 2017

I am providing two model portfolios for equities in order to give some guidance to portfolio structure. We know that volatility is about 90% dependent on portfolio asset allocation and construction. As a result, we want to have a process that is easy to understand visually for building our asset allocations.

Right now you will see that despite being equity portfolios, I am recommending to be heavy in cash and the U.S. dollar. The stock markets are slightly to very overvalued depending on valuation method, as well as the sector and market cap ranged looked at.

The Growth with Income Portfolio is appropriate for those several years or more from retirement. It relies on the ideas that smaller companies grow to larger companies, that companies with moats win long-term and that companies moving into profitability have big stock appreciation runs when the market recognizes the new profitability. Consider Peter Lynch’s idea that: 

“All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.”

The Equity Income Portfolio is appropriate for those near or in retirement. This portfolio will generate more portfolio income that can either be taken or accumulated and then reinvested when opportunity presents.

It is a fallacy to think that dividend stocks automatically outperform non-dividend stocks. Dividend stocks are just as correlated to negative market events as non-dividend stocks. 

There is a tendency of investors to pile into dividend stocks that pushes those stocks up when their fundamentals do not justify it. I think today is one of those days. 

Here are the PDFs of the model portfolios:

Growth with Income Portfolio


Equity Income Portfolio



Disclosure:I am/we are long KMI, INTC, CTL, OXY, POT, STOR, EXAS, CTRL, AR, BRK.B, CAFD, CHK, ECA, XES, XOP, SPWR, SVU.