Modelish Portfolio Ideas


Summary

  • I don’t give full model portfolios as I am a registered investment advisor and I don’t regulators to see me as giving personalized advice.
  • That said, here are some ideas for you to build from.
  • In most cases, everybody should have a portion of their portfolio in easy to allocate low cost ETFs.
  • Fill in the rest of your portfolio with 12-30 stocks or go all ETFs.

Many people ask for model portfolios. I get it. Copy and paste. But that’s not the right way to invest. Do the research. Understand what you own and why. That is the only way to sleep well at night and make money long-term. 

How To Build A Strategic Investment Model

Strategic asset allocation is the term given to the backwards looking, I mean, historical approach to investing. Modern Portfolio Theory suggests that past is prologue, so copy what worked a generation ago. I think that is only part right and a lot wrong.

Here is what is right. Having structure to a portfolio allows for consistency and encourages discipline. These are both qualities that you need to invest. 

So, I suggest adopting a core and satellite portfolio strategy. Use gently diversified ETFs to give yourself a tilted asset allocation that is based on secular trends. These are rarely traded. Generally, only bought or sold at the end of bull and bear markets.

Then, create a satellite galaxy of ETFs and stocks that support an asset allocation tilted cyclically. These will be traded a bit more frequently. You can decide if you want to position trade or position trade & swing trade.

Asset Allocation

Core Portfolio

The core part of your portfolio should contain diversified ETFs. The two we are focused on are the Invesco QQQ (QQQ) which is based on the Nasdaq 100 and the ARKK Innovation ETF (ARKK).

The Nasdaq 100 companies are primarily new economy blue chips stocks. They hold about 70% of all cash on corporate balance sheets in America. This index has blown the doors off the S&P 500 for total return for every rolling 5-year period since July 2002. 

ARKK focuses on smart everything world innovation companies and has been a top performer. It is actively managed, so a bit more expensive, but still cheap at 3/4%. 

These core holdings should comprise a quarter, two-quarters or three-quarters of your total invested assets in my opinion. And QQQ should be 3/4 of that allocation to 1/4 for ARKK. More aggressive investors could go 50/50. 

Satellite Galaxy

It might seem weird that up to 3/4 of your portfolio would be non-core, but, that is precisely how very successful hedge funds, family offices and other institutional investors manage money. Less successful do it the ways you hear too much about. 

If you do not want to own individual stocks due to time constraints or not wanting individual company risk, I understand. And, that’s fine. Using sector based, commodity and nation based ETFs can work almost as well as using stocks.

For what you give up in home run potential not owning stocks, you can make up for by being more consistently right with ETFs. Think of it this way, if you use all ETFs, you’re a singles and doubles hitter that rarely strikes out. A lot of them make the Hall of Fame. 

If you have the time to research companies and stomach for more volatility, then the home run potential of stocks makes sense. Being able to see dividend growth stocks triple total return over a decade is a good feeling. Having the occasional 5 bagger, 10 bagger or 20 bagger can literally change your lifestyle for the better. 

Always remember this, if you buy stocks, buy at least 12 as that is where statistically any one strikeout shouldn’t hurt you that much. Also, never buy more than 30 because there is no way you can keep up with that many. 

How I Do It

I use one of three approaches to modeling asset allocation: 

  • ETF Only – This is basically the Global Trends ETF portfolio. It works find and captures macro opportunities.
    1. I make 1/2 QQQ and ARKK.
    2. I trade the other 1/2 cyclically.

Remember, I’m retail registered investment advisor, so I have regulators to consider. Trading more than half an account gets a weird look. I don’t see why you couldn’t go 1/4 core and 3/4 satellite with ETFs.

  • ETF + Stocks – Here I do a half and half and half approach. What does that mean. I split the portfolio into half ETFs and half stocks.
    1. The ETF half is again split in half with QQQ and ARKK on one side and cyclically traded ETFs on the other side.
    2. The other half is stocks, generally around a dozen in growth accounts or 20 in dividend accounts or 30 in accounts that want both growth and dividend representation.
  • ETF + Stocks + Options – Here I do a 4 quarters approach.
    1. One quarter QQQ + ARKK.
    2. One quarter cyclically traded ETFs.
    3. Half in stocks and options (wait a second, we get to the quarters).
      • The stocks and options half is heavy in cash secured put selling. When a stock gets put to me, I look for an effected covered call strategy. For slower growing dividend stocks I often write a long dated covered call about 20% out of the money. On those if it gets called away in 6 or 9 months, I made 20% plus premiums plus dividends. I can live with that. I consider this two quarters because often a quarter or more of my cash is simply being held for cash secured puts that I sold. Remember this chart: 

How You Do It

This will depend on you, but the approaches I outlined above have worked well for managing millions of dollar. In general, I would use those approaches and stick somewhat close, though allow for a little flexibility and understand there’s a little fudging cycle to cycle base on market action. 

Disclosure: I am/we are long QQQ, ARKK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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