From time to time I receive questions that boil down to How do I get started using the five portfolios on the site?
Here’s my advice:
First decision: Are you going to cherry pick a portfolio or follow the whole selection of picks that it offers?
Part of your answer will depend on your own existing portfolio and your experience as an investor or trader.
You can, of course do either with any of the portfolios on the site. But…
…the more complete your own portfolio is the more it makes sense for you to treat my portfolios as a source of ideas for improving your portfolio or for putting new money to work in your existing portfolio. My suggestion is that you follow the same vetting procedure with one of my picks that you do with any of your own ideas. Don’t give any of my picks a pass just because it’s my pick. If you invest in any of what strike you as the best ideas in any of my portfolios, it should be at least as good as anything that you now own that you’ve discovered on your own. In my posts on buy and sells I try to explain the logic of my decision so you’ll have the detail you need to check out my thinking.
And some of the portfolios here are more conducive to cherry picking the best ideas, and others are best used as complete portfolios. I’d say that the Jubak Picks, Top 50 Stocks and Dividend Portfolios are relatively well-suited to cherry picking. The Volatility Portfolio and the Perfect 5 ETF Portfolio are designed to be used as portfolios. The holdings balance and complement each other in ways that try to diminish risk and maximize returns in the group as a whole. That doesn’t mean that you can’t cherry pick an options position from the Volatility Portfolio, for example, when it seems market appropriate. I do think, however, that if you only cherry pick these portfolios you’ll leave some of the value of these portfolios on the table.
Second decision: When can I start?
Four of the five portfolios are rebalanced early in the new year. As an example, early in 2018 I rebalanced the Dividend, Top 50 Stocks, and Perfect 5 ETF portfolios. I’ve fallen a bit behind in rebalancing the Volatility Portfolio thanks to market volatility, but I should complete that work over the upcoming Presidents’ Day weekend and publish a post on that rebalancing on Tuesday, February 20. Given that the recent correction has bounced stocks back pretty much to where they were at the beginning of that year, I think you can go ahead with any of the lineups in these four portfolios. You might consider buying stocks that have dropped the most first. (Or if you know what stocks will bounce back first, buy them to start. And then email me with the source of your crystal ball.) When I did the rebalancing of these portfolios I was looking for a 3% to 5% decline at the end of January–we got more than that and a little later than I expected but not by enough to change my read on these portfolios. At the time of the rebalancing I was also looking for the first half of the year to be stronger than the second half as the economy got the quick benefits from government stimulus with the pain of higher interest rates likely to kick in later in the year. I still think that’s a reasonable scenario for the year.
The fifth portfolio, the Jubak Picks Portfolio, is set up differently than all the others and in that portfolio I use target prices rather than annual rebalancing. I’m planning to write a follow up post to this one on how to use target prices. (And I’m at work on bringing the reporting on this portfolio up to date with the results scheduled for shortly after the rebalancing of the Volatility Portfolio.)
Third decision: How much money do I have to put in any portfolio?
I run these assuming equally sized positions in every holding except where noted in the Volatility Portfolio and except as normal practice in the Perfect 5 ETF Portfolio. For these equal weight portfolios I use a $10,000 initial position size but that’s really just a mathematical convenience since it makes the calculations easier. The amount of money you put into any portfolio really depends on where it fits into your own financial plans. Is it, for example, your main portfolio? (Something you might do with the Top 50 Stocks Portfolio.) What diversification goal are you looking for this portfolio to help you with? (For example, Are you looking to the Dividend Portfolio to diversify your other holdings that are concentrated in growth stocks?) This is a hard question for me to answer since I don’t know anything about your personal holdings (and please don’t ask for that level of personalized advice; I can’t legally offer that kind of information in this format.) But I would note that one mistake that you should avoid is spreading your portfolio among so many alternatives that even getting a pick right big time has no significant effect on your overall wealth.
For the two portfolios that don’t assume equal weight positions, I note any overweighting on the Volatility Portfolio when I rebalance. In this year’s effort, due for posting on February 20, right after Presidents Day, I’ll be overweighting the options position in Nektar Therapeutics and my position in the short Treasuries ETF.
The first time I rebalanced my ETF portfolio (on January 16, 2018) I used these weightings: 15% for the U.S. S&P 500 ETF, 20% for the bank ETF, 25% for the developed non-U.S. ETF, 25% for the emerging markets ETF, and 15% for the gold ETF. I make adjustments to these allocations roughly twice each year when I make changes to the 5 holdings.
Fourth decision: What’s the best portfolio for me to start with?
Again, the answer depends on where you’ve got the rest of your money stashed. The Perfect 5 ETF Portfolio could be a core holding for someone who doesn’t want to spend a lot of time learning the markets but who wants exposure to stocks and bonds. Putting the long-term Top 50 Stocks Portfolio together with a pick or two from the Volatility Portfolio to give you a bit of a hedge on the downside also makes sense to me for an investor with a longer-time horizon, but who doesn’t want to take a scary beating at every correction. The Dividend Portfolio is an obvious alternative for an investor looking for current cash flow. The more volatile Volatility Portfolio might make a good choice for investors who have time to put into learning the market in more depth and who don’t mind trading off more risk for much more (I hope) upside potential. I’d use the 12-8 month Jubak Picks Portfolio as a source of individual ideas, as a source of contrarian plays, as a source of more aggressive versions of the long-term picks in the Top 50 Stocks Portfolio and as a source of less risky versions of the picks in the Volatility Portfolio.
I’m sure that this doesn’t answer every question that everyone might have. But I hope it gives you enough of the basics to get your started. As I noted above I’ll post some thoughts on how to use target prices in the next week or so.
If you have other questions that I haven’t answered, submit them here.