Constructing The Family Portfolio

Ensete Ventricosum

This is old material for long-time readers, but may be new to folks who have joined ITA in the last six months.  If you have been following this blog for some time you know there are numerous models explained and reviewed here on a regular (monthly) basis.  The approaches I’ll highlight are those I use.  HedgeHunter manages and updates several other portfolios that you might find interesting.  For example, if you are interested in individual stocks, then I highly recommend tracking the Dirac portfolio, which will be updated this coming weekend.  In fact there will be a lot of blog action this weekend as we are closing in on the end of February.

When I think of developing or constructing a family portfolio I automatically think of a two person unit.  If you are single, this approach also applies.  Let’s think of the two person unit were each person has a tax deferred account and a taxable account.  This is where I come up with the four portfolio plan.

• Buy-Hold-Rebalance is the portfolio of choice to begin your investing career.  Examples on this blog are the Schrodinger and Bohr.  The Schrodinger is a Robo Advisor portfolio managed at Schwab.  There is no cost to operating this portfolio.  The only disadvantage I’ve found is that Schwab tends to carry 7% to 9% of the portfolio in cash from month to month.  This is a drag in an up market, but a benefit in a down market.  The Bohr is an Asset Allocation portfolio I’ve set up for an individual at Vanguard.  Vanguard is a low-cost “broker” where they specialize in low-cost mutual funds.  If you are setting up your own Buy and Hold portfolio, this is a good place to hold your higher yield ETFs.  Each person in the two unit family will hold one of these tax deferred portfolios.  With taxes as low as they are, this is an excellent time to open up and feed a Roth IRA.
• The second portfolio approach is the Dual Momentum model.  There are six portfolios here at ITA that use this model.  Examples are:  Aristotle, Euclid, Galileo, Franklin, McClintock, and Pauling.
• The third approach falls into what I call the Relative Strength model.  Examples on this blog are:  Bethe, Einstein, Kepler, Millikan, etc.
  • There are several subsets of this model and they are:  HA, BHS, and LRPC.  Check the Carson Trio reviews (coming tomorrow) as the three models are reviewed on the last business day of the month.

Since it is highly unlikely one model will perform well in all market conditions, use several models.  For example, if you wish to protect capital through the use of Trailing Stop Loss Orders, you would not use the Schrodinger or Bohr examples as TSLOs are not permitted.  However, you can use TSLOs with either the Dual Momentum and Relative Strength models, provided they are held at a broker that permits setting these types of limit orders.  Vanguard does not permit setting TSLOs so keep that in mind.  Schwab and TD Ameritrade allow the use of TSLOs.

Depending on your investing interests and willingness to spend time working with different models, consider breaking your portfolio into smaller portfolios and use different approaches.

I know of one investment writer who advocates the ultimate in simplicity.  He says to simply invest in VT as that one ETF covers the entire equities market.