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Model Portfolios of ETFs for High Return and Low Variability

Changing The Aggressiveness of Your Account

For most people, it is best to implement the model portfolios as they appear in the weekly publication. But there may be times that you want to reduce or increase the aggressiveness of your investments.

From time to time, we may indicate that the market and the MRI-based algorithms are not well synchronized and suggest that reducing aggressiveness would be appropriate for some users. Also, you may decide to change the aggressiveness of your account in order to meet your investment objectives more effectively.

The two main methods to adjust the aggressiveness of your investment account are:

Adjusting the cash level. Invest less in the ETFs of the model portfolio by changing the "cash level" held in your account, which can be done quickly with little effort outside of our regular Friday trading discipline. This is done by adjusting the amount held in Box #2 on the Shares-to-Trade Worksheet.
Use the target weights of a different model portfolio, which would be done in our regular trading schedule.

1. Adjusting the Cash Level

Change the value in Box #2 of the Shares-to-Trade worksheet.

Increase the value of “Box #2 Cash” to reduce aggressiveness.
Decrease the value to increase aggressiveness

The weekly publication gives guidance on the level of Additional Box #2 Cash to hold. The minimum amount to have in Box #2 is 2 to 3% of your total account to act as a buffer for trades that may not take place at exactly the price anticipated. When the weekly publication suggests 20% as an additional level, for example, enter 22% or 23% in Box #2.

2. Switching to a Different Model Portfolio

You can also use the target weights of a different model portfolio to change aggressiveness. On the weekly publication, we may suggest a shift of -1 or 1, for example. On the Shares-to-Trade Worksheet, you can enter this number in Box #3, and the sheet will indicate the portfolio with the target weights to use.

On the scatter diagram on the first page of the weekly publication, model portfolios to the right of the chart are more aggressive. Model portfolios to the left are less aggressive (more conservative). The number -1 shifts one portfolio to the left, and 1 shifts one portfolio to the right.

Making a Permanent Switch in Your Long-Term Portfolio

If you are planning to make permanent switch to better meet your long-term goals and objectives, try to time the switch to the advantageous "money moving season." We mention the current season in each weekly publication.

You may get better long-term returns if you make a switch to:

A more aggressive portfolio during a Plant season
A more conservative (less aggressive) portfolio during a Harvest season.

The video (3 minutes) below discusses the Plant/Wait/Harvest seasons.

Timing of Contributions and Distributions

The Plant/Wait/Harvest designations are part of "Strategy Two" described in the section below and in the video at the end of this section.

IMPORTANT NOTE:

The strategies discussed below are for the timing of your relatively infrequent contributions and distributions to and from your accounts invested in the stock market. The strategies are not to be confused with trades that we will make among the ETFs of the model portfolio throughout the year. For most of your time using Focused 15 Investing, the strategies below will not be needed.

As an example of contributions and distributions, those in their early careers making major contributions to their retirement accounts should consider these strategies for determining when to invest those contributions. For retirees, the strategies can be considered when you need to take money out of your account (distributions) for living expenses.

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Although we know that we should buy low, many people become interested in the stock market after it has appreciated dramatically. Thus, they are more likely to put money into the stock market near the peak of a price cycle.

While the Focused 15 Investing portfolios seek to avoid losses, we don't avoid them completely. This post lists strategies for moving money into the ETF model portfolio you have selected from the Focused 15 Investing publication. These strategies can help you avoid putting all your money in the ETFs at the top of a meaningful stock price cycle.

Likewise, there is a tendency to sell after major decline to reduce any additional pain of falling stock prices. These strategies can help you avoid taking money out of your retirement account (distribution) at low points, or bottoms, of meaningful cycles.

Assume you plan to invest $10,000 into an account that you will trade tracking a Focused 15 Investing portfolio. Put the $10,000 into your account, and then use one of the following strategies for investing all of that $10,000.

Strategy One: One-Third Every Three Weeks (Moving In or Out)

For the trades for the first Friday, enter in "Box #2 Cash" on the Shares-to-Trade worksheet 66%. The worksheet will then allocate 33% of your $10,000 to the ETFs in the model portfolio you have selected.
Three weeks later, change the amount in Box #2 Cash to 33%. This will allocate the next one-third of your money to the ETFs.
Three weeks after that, change the amount in Box #2 Cash to 3%. This will invest the next roughly one-third of your account. It also leaves a cash buffer in your account, which I suggest should be roughly 2 to 3%.
When you want to take money out of your accounts, you can increase the allocation to Box #2 Cash to sell your ETFs. You can sell the appropriate number of shares of ETFs over a period of time.

Strategy Two: Money Moving Seasons (Moving In or Out)

I indicate three different "seasons" for moving money based largely on the Micro Market Resilience Index (MRI) cycle. The seasons are Plant, Wait, and Harvest.

Plant - This is when the Micro MRI is low in its cycle and likely to move higher. It is a good time to move money into the model portfolio, if needed. During a Plant season, hold off taking money out, if practical.
Wait - Hold off moving money in or out. This is a time to prepare for the next Plant or Harvest season, if needed.
Harvest - This is when the Micro MRI is high in its cycle and likely to move lower. It is a good time to move money out of the model portfolio, if needed. During a Harvest season, hold off putting money in, if practical.

These are also discussed in the video at the end of this section.

Strategy Three: Hybrid

For moving money in, move one-half of your money into the model portfolio in each of two Plant seasons. Since there are roughly two Plant seasons a year, this strategy takes the longest to fully invest the desired amount.

For moving money out, move one-half of your money out of the model portfolio in each of two Harvest seasons. Since there are roughly two Harvest seasons a year, this strategy takes the longest to fully invest the desired amount.

Please see this video for a general discussion of the Plant/Wait/Harvest seasons.

Naming Conventions

The Focused 15 Investing publications each have series of model portfolios. The names can be confusing but there is a structure we follow, described below. Also, remember that each model portfolio has a sleeve group (sg) number that stays with it regardless of the name. Please refer to the sg number when in doubt.

Main "Loss-Avoidance" Signal Sets:

"D4:" Loss-avoidance signals for the Dow Jones Industrial Average stock index
"N7:" Loss-avoidance signals for the NASDAQ stock index

Examples of "Relative Leadership" Signal Sets:

Russell 2000 (Small Co Stocks-IWM) vs Russell 1000 (Large Company Stocks-IWB)
Emerging Market stocks (EEM) vs Emerging Market Bonds (EMB)
US 10y Treasury Bonds vs US 2y Treasury Bonds

Names of the main ETFs driving risk and return within the sleeve:

Diamond: Uses the D5 signal set to avoid losses in the DJIA and makes use of ETF “DDM,” which is aggressive and gives roughly two times the return of the DJIA each day.
Sapphire: Uses the D5 signal set to avoid losses in the DJIA and makes use of ETF “UDOW,” which is very aggressive and gives roughly three times the return of the DJIA each day.
Zircon: Uses the D5 signal set to avoid losses in the DJIA and makes use of ETF “DIA,” which is less aggressive and gives the same return as the DJIA each day.

Model Portfolios of ETFs for High Return and Low Variability

Building Blocks of Model Portfolios

Changing The Aggressiveness of Your Account

Timing of Contributions and Distributions

Naming Conventions

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