Tactical Allocations

Monthly Portfolio Update: The new tactical allocation for December will be:   Large Cap Equity:   100%   Small Cap Equity:     0%   High Yield Debt:        0%    Inv. Grade Debt:        0%   Look for a re-cap of performance on January 2nd. The Equal portfolio:  There will be no trades in this account in December. The cash balance at month end is $734.94.  Total market value of this fund is $106,899.35. I will only rebalance when weightings get off by 5% or more (i.e. one of the asset classes has less than a 20% or more than a 30% weighting) or the cash balance is over $1000. The TA portfolio:  There is no change from the previous month so no trade is needed for this portfolio. The cash balance at month end is $613.89. The total market value of this portfolio at month end is $112,438.13. The Enhanced portfolio:  There is no change in allocation for...

"Lack of Clarity gives Birth to Disappointment" ~ Dan Rockwell Bitcoin's meteoric rise What Is Bitcoin? Everyone is talking about it, but what is it? At the most basic level it is an electronic voucher that says you own it (sounds redundant, no?). It is an electronic record stating who owns how many "bitcoin". There is no physical thing that is a Bitcoin, no one has ever seen, or touched, or tasted one. Its power comes from something called the "blockchain" which makes it (to date) impossible to hack or replicate. So although it is nothing, it is not (currently) replicable or hackable and it is transferable (kind of like money without the paper and metal). The blockchain allows for the exchange and creation of more Bitcoin without a third party middleman. No bank is needed to verify the transactions or to store the Bitcoin or validate their authenticity. No one but the blockchain "system" can validate exchanges or create new vo...

MORNINGSTAR PEER RANKS: Often the most difficult test is to look at a fund against its peers. How does performance stack up against the other active managers who are trying to run a similar strategy? I went out to Morningstar and found a Tactical Allocation Peer group ( you can see it here ). These numbers will be more meaningful as my strategy gets a longer history and I can compare 1, 3 and eventually 5 year numbers. As of November 30, 2017: 1 Mo 3 Mo 1 Yr 3 Yrs 5 Yrs Equal   68%   67%   -na-   -na-   -na- TA   91%   98%   -na-   -na-   -na- Enhanced   43%   33%   -na-   -na-   -na- # of Funds    307   307   295    245    192 Max  4.15%  8.98% 27.99%  11.49% 12.38% Min -1.26% -2.27% -2.36% -11.42%   -6.36% COMMENTARY: The TA fund has had a very good three months. It is interesting to note that last quarter, the Enhanced f...

TRADES  (performed on November 1st) : Equal Weight Portfolio: Beginning cash $200.88 No trades for this fund TA Portfolio: Beginning cash $49.52 Sold 76 shares of VTWO at $121.75 per share, $7 commission, total proceeds $9,246.00 Purchased 76 shares of VONE at $121.06 per share, $7 commission, total cost $9,207.56 Cash left over $87.96 Enhanced TA Portfolio: Beginning cash $163.62 Sold 169 shares of IEMG at $55.515 per share, $7 commission, total proceeds $9,375.04 Purchased 587.2862 shares of DSEEX at $16.23 per share, $7 commission, total cost $9,538.66 Cash left over $0.00 DISCLAIMER: Past performance is not a guarantee of future performance.  This strategy is presented for informational purposes only and is not a solicitation to buy or sell any securities.  October is one of the peculiarly dangerous months to speculate in stocks in.  The others are July, January, September, April, November, May , March, June, December,...

PERFORMANCE: Cumulative returns of each of the strategies as though you had invested $100,000 in them at the beginning of the blog. In November the  Equal weighted portfolio  returned   1.4%. This portfolio is my version of a buy and hold portfolio and I use it as my benchmark for the two portfolio's below.  The  TA portfolio  was the best performing portfolio and returned 2.8%. This portfolio invests in the same securities as the Equal weighted portfolio but actively allocates by adjusting how much is invested in each asset class. The  Enhanced portfolio  returned 0.9%. This portfolio uses the allocation of the TA portfolio and seeks to enhance those returns by buying funds that access the asset class in a different way. COMMENTARY: Equal Portfolio:   This portfolio is invested about 25% in each of four asset classes ( investment grade debt , high yield debt , large cap equity and small cap equity ). It is the...

Monthly Portfolio Update: The new tactical allocation for November will be:   Large Cap Equity:   100%   Small Cap Equity:     0%   High Yield Debt:        0%    Inv. Grade Debt:        0%   Look for a re-cap of performance on December 1st. The Equal portfolio:  There will be no trades in this account in December. The cash balance at month end is $200.88.  Total market value of this fund is $106,521.10. I will only rebalance when weightings get off by 5% or more (i.e. one of the asset classes has less than a 20% or more than a 30% weighting) or the cash balance hits $1000. The TA portfolio:  The change from the previous month is another reduction in Small Cap Equity (VTWO) and an increase in Large Cap Equity (VONE). The total market value of this portfolio at month end is $111,248.21. I will sell all remaining (76) shares of VTWO and purchase as much...

Many want it, few achieve it. Why?    This post is particularly important for those in their early twenties or younger because they still have lots of time, but it will help anyone looking for help on how to build their retirement nest egg. It may surprise you, but retiring early has little to do with how much you earn. Is It Really Possible? I am on track to retire at 52 (that is not many years away for me). It is two years later than my original goal but still well ahead of most. In this post I will outline a few things that I believe have been key in my making early retirement a reality. The Goal: Without a goal you will never make it. There is always something to do with your money. I don't care how much you make, there is always something you would like to spend that last dollar on. You also have to adjust your thinking from a retirement age to a retirement amount.  The amount is how much you need each year to live a fulfilled life. Obviously t...

MORNINGSTAR PEER RANKS: Often the most difficult test is to look at a fund against its peers. How does performance stack up against the other active managers who are trying to run a similar strategy? I went out to Morningstar and found a Tactical Allocation Peer group ( you can see it here ). These numbers will be more meaningful as my strategy gets a longer history and I can compare 1, 3 and eventually 5 year numbers. 1 Mo 3 Mo 1 Yr 3 Yrs 5 Yrs Equal   34%   43%   -na-   -na-   -na- TA   91%   92%   -na-   -na-   -na- Enhanced   39%   63%   -na-   -na-   -na- # of Funds   308   305   297    250    193 Max  5.45%  9.81% 31.41%  12.33% 12.08% Min -1.16% -1.49% -2.92% -11.66%  ...

PERFORMANCE: In October the  Equal weighted portfolio  returned   1.0%. This portfolio is my version of a buy and hold portfolio and I use it as my benchmark for the two portfolio's below.  The  TA portfolio  was the best performing portfolio and returned 2.5%. This portfolio invests in the same securities as the Equal weighted portfolio but actively allocates by adjusting how much is invested in each asset class. The  Enhanced portfolio  returned 1.2%. This portfolio uses the allocation of the TA portfolio and seeks to enhance those returns by buying funds that access the asset class in a different way. Monthly returns are volatile so below I show the cumulative returns of each of the strategies as though you had invested $100,000 in them at the beginning of the blog (assumes $7 cost per trade). COMMENTARY: Equal Portfolio:   This portfolio is invested about 25% in each of four asset classes (invest...

TRADES  (performed on November 1st) : Equal Weight Portfolio: Beginning cash $1260.32 Purchased 6 shares of AGG at $109.25 per share, $7 commission, total cost $662.50 Purchased 15 shares of JNK at $37.08 per share, $7 commission, total cost $563.20 Cash left over $34.62 TA Portfolio: Beginning cash $483.90 Sold 76 shares of VTWO at $118.995 per share, $7 commission, total proceeds $9,036.62 Purchased 79 shares of VONE at $118.30 per share, $7 commission, total cost $9,471.00 Cash left over $49.52 Enhanced TA Portfolio: Beginning cash $165.08 Sold 168 shares of IEMG at $56.081 per share, $7 commission, total proceeds $9,414.61 Purchased 604.7181 shares of DSEEX at $15.83 per share, $7 commission, total cost $9,579.69 Cash left over $0.00 DISCLAIMER: Past performance is not a guarantee of future performance.  This strategy is presented for informational purposes only and is not a solicitation to buy or sell any securities.  October...

Monthly Portfolio Update: The new tactical allocation for October will be:   Large Cap Equity:   92%   Small Cap Equity:     8%   High Yield Debt:        0%    Inv. Grade Debt:        0%   Look for a re-cap of performance on November 1st. The Equal portfolio: It is now time to make our first trade in the equal weighted portfolio. The cash balance at month end is $1260.32. The Investment Grade Debt and High Yield Debt allocations are quite a bit lower than the two equity allocations and so I will split the trade into two. Half going into each.  I will buy about $600 of each AGG and JNK. I will favor AGG as it has the lowest balance in the portfolio. Total market value of this fund is $105,042.35. The TA portfolio:  The change from the previous month is another reduction in Small Cap Equity (VTWO) and an increase in Large Cap Equity (VONE). I will sell 1/2 of the V...

I have seen a number of articles recently discussing the growing wealth gap in the United States. There are many reasons for this but I think one of the most important that I have heard is that the rich hold more stock. They hold ownership in companies. They take more risk with their savings. I would point to a few observations that I think everyone should be aware of in regards to this discrepancy. What we think of as "risk-free" actually has a great cost. There are structural considerations for how much risk one can take. What can you do (if you are not rich) to tip the scales in your favor. 1) The risk in "risk free" investing:  There is no "risk-free" asset. Over time money markets (short term Treasury bonds) have barely kept up with inflation so if we take inflation out of the equation money markets earn you nothing. Yet many consider them a "risk-free" asset. While there may be very little risk that you do not get paid back there ...

TRADES  (performed on October 2nd) : Equal Weight Portfolio: Beginning cash $889.92 No trade made because allocations were within acceptable range and cash was below $1000 Expect to make a trade next month TA Portfolio: Beginning cash $93.04 Sold 76 shares of VTWO at $119.43 per share, $7 commission, total proceeds $9,069.68 Purchased 79 shares of VONE at $115.6628 per share, $7 commission, total cost $9,144.36 Cash left over $18.36 Enhanced TA Portfolio: Beginning cash $230.36 Sold 167 shares of IEMG at $54.02 per share, $7 commission, total proceeds $9,014.34 Purchased 182 shares of JXI at $50.7392 per share, $7 commission, total cost $9,241.53 Cash left over $10.17 I will update last months performance with the allocation adjusted for today's trades later today. DISCLAIMER: Past performance is not a guarantee of future performance.  This strategy is presented for informational purposes only and is not a solicitation to buy or sell any...

PERFORMANCE: In September the  Equal weighted portfolio  returned   1.9% and is the baseline for the other portfolios.  The  TA portfolio  (which actively allocates among the four asset classes that are in the equal weighted portfolio) outperformed the equal weighted portfolio returning 2.7%.  The  Enhanced portfolio  (which uses the allocation of the TA portfolio and seeks to enhance those returns with security selection) did the worst, returning 0.8%. The relevant security returns (used in the above three portfolio's) for the month of September (excluding dividends) were: For  Equal  and  TA portfolios :  VTWO   6.0%,  VONE  1.6%,  JNK  0.2%,  AGG  -0.8% For  Enhanced portfolio :  IEMG  0.0%,   DSEUX  1.7%,  KXI  -0.9%,  JXI  -2.6% Co lor significance for whole post: Red  is small cap equity...

Monthly Portfolio Update: The new tactical allocation for September will be:   Large Cap Equity:    83%   Small Cap Equity:    17%   High Yield Debt:        0%    Inv. Grade Debt:        0%   Look for a re-cap of performance on October 2nd. The Equal portfolio:  There are no changes to the equal portfolio. The cash balance at month end is $889.92, total market value is $103,957.14. I will only rebalance when weightings get off by 5% or more (i.e. one of the asset classes has less than a 20% or more than a 30% weighting) or the cash balance hits $1000. The TA portfolio:  The change from the previous month is a reduction in Small Cap Equity (VTWO) and an increase in Large Cap Equity (VONE). This makes the portfolio a little more defensive, however it is still 100% in equities and therefore very bullish. I will sell 1/3 of the VTWO shares (which is 228/3 = 76)....

In The Lord of the Rings, Gollum's final riddle to Bilbo Baggins was: This thing all things devours:   Birds, beasts, trees, flowers;    Gnaws iron, bites steel;    Grinds hard stones to meal;   Slays king, ruins town,   And beats high mountains down. The riddle's answer is "time". Time has a huge impact on all things.  In my previous post "Why Now" I discussed the important impact of time on investment returns. In this post I would like to discuss the impact of time on risk. There are many types of risk. For this discussion I focus on two critical types of risk which I will name "volatility" and "destruction". Volatility is the risk that comes because prices move both up and down. The bigger the moves, the higher the volatility. You might think of this as the price being less dependable. Destruction is the risk of the investment permanently going away (think bankruptcy for a company). You might think of this as fragility. A ver...