This weekend is a good time to think through the basic setup of portfolios as we look forward to investing over the remainder of 2018 and longer. Readers who have been following portfolio reviews observe the basic construction of Linear Regression Projection-Convolution (LRPC) portfolios. LRPC portfolios rely on core holdings that cover all the basic global asset classes. In addition to core holdings, there is likely to be a group of ETFs holding shares from past LRPC recommendations. The final group of ETFs are what I call, Top Tier ETFs. These are the securities that survived all the Kipling LRPC screens and the PnF Ratio screen.
A specific example is generally the best way to illustrate a verbal explanation. In the following case I’ll use the Pauling portfolio as it is scheduled for review at the end of next week. In addition, the Pauling is housed at Schwab so it contains a few different ETFs among the core holdings.
Pauling LRPC Recommendations: The first ten (10) ETFs have a blue background and form the core holdings of the Pauling. That does not mean we hold shares in each. Rather, these are the core securities available for use if and when they meet the LRPC requirements for inclusion in the portfolio. REM and SLYV are ETFs currently in the portfolio based on past recommendations. These ETFs are coded with a green background.
Since the last review I sold shares of WOOD, but held on to REM so as to capture second quarter dividends. SLYV was performing well so I held on to the 60 shares as well. Come next week, I expect there will be changes in the Pauling if the LRPC recommendations shown below are any indication.
Pauling Position Sizing Recommendation: Come the first of August, expect the Pauling to look more like the following portfolio where we hold shares of SCHH, IHF, and VIOO or IJR. Changes depend on what shows up for the Top Tier recommendations.
Fall and Winter Preparation: If history is any indication, the fourth quarter of the year is one of the better performing quarters. Now is the time to adjust the portfolio in preparation for the end-of-year run. One of my recommendations, when using the Position Sizing (Auto) worksheet, is to adjust Max Trade Portfolio Risk percentage so the portfolio risk does not exceed 5% or 6%. In the above example I have the risk adjusted to 4.95%.
If readers who hold accounts at Schwab have replacements for RWX, GLD, and BWX, please submit your recommendations.