Alpenrose Velodrome – Now closed.
This ITA Wealth Management blog has been chugging along for approximately 16.5 years. Over the last few months I’ve moved several portfolios back to what I call my investing roots or what is known as the Asset Allocation model. While I loosely used this model for years going back into the 1960s through the 1990s, I began to take it seriously after reading William J. Bernstein’s book, The Intelligent Asset Allocator. While I still consider this book an excellent work, it is not easy reading for a beginning investor. Bernstein recognized this and improved on a later volume, The Investor’s Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between.
The 15 portfolios I track fall into four basic models and they are: Equities Only, Robo Advisor or Intelligent Portfolio, Asset Allocation, and Sector BPI. Portfolios tracked and reported on by Hedgehunter follow different investing approaches so I am speaking only about those I review regularly.
Portfolio Model Summary
Equities Only: Copernicus is the single portfolio using this model. The philosophy driving this model is to invest only in U.S. Equities such as VOO, VTI, SPY, and ESGV. Save as much as you can as early as you can (Golden Rule of Investing) and never sell unless there is an emergency. This model is for the young and/or those with at least ten years of investing ahead.
Since there is no selling, this portfolio is tax efficient.
Robo Advisor or Intelligent Portfolio: Schrodinger is the single portfolio using the computer managed approach. This portfolio is housed with Schwab and is totally managed by computer. There is zero cost other than the normal fees associated with Exchange Traded Funds (ETFs). Schwab calls these portfolios, Intelligent Portfolios. The Schrodinger is of sufficient size to take advantage of Schwab’s tax managed decisions. To readers who have a spouse or significant other who has little or no interest in the stock market, this style portfolio belongs in your tool box. If the person who manages the portfolio dies first, other managed portfolios can be funneled into this Intelligent Portfolio to form one portfolio. Readers following the Schrodinger know how well it has performed going back many years.
Few sell trades have occurred over the past seven years so this is a tax efficient portfolio.
Asset Allocation: I am currently using the asset allocation model with eight portfolios. Several are still in transition from other investing models. These eight are: Bethe, Bohr, Einstein, Huygens, Kepler, and Pauling. Two other portfolios using this model, but not reviewed publicly are the Curie and Newton. These eight portfolios are very similar to the Schrodinger approach, but use different ETFs.
Reworking these eight portfolios is what I call returning to my basic investing roots.
The asset allocation percentages are based on volatility percentages. The goal is to keep the actual portfolio percentages within +/- 0.5 of the stated goals. It may be months before all the asset allocation portfolios are in balance.
These are tax efficient portfolios as there is minimum selling. New cash infusions and dividends are used to keep the asset classes in balance.
Sector BPI: Five portfolio use the Sector BPI investing model. I’ve yet to find any other source using this approach to investing. The five portfolios following this model are: Carson, Franklin, Gauss, McClintock, and Millikan. All are reviewed approximately every 33 calendar days. Several blogs are posted explaining how the Sector BPI model works. Note when a Sector BPI blog is posted and follow the logic used to implement this rather mechanical model based on Bullish Percent Indicator signals.
Of the four basic investing approaches, the Sector BPI model is the least tax efficient as there are transactions when sectors are deemed oversold or overbought.
Questions and comments are always welcome. Please share the ITA blog link (https://itawealth.com) with your family and friends. Also post the link on your social networks. Thanks in advance.
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I don’t understand WHY asset allocation percentages are based on volatility percentages. I did see somewhere how you calculated them.
Bob
Bob,
I am in the process of changing the percentages. Changes were made with both the Kepler and Einstein. Instead of basing the percentage on volatility I am following David Swensen’s recommendations, which are not far off recommendations by William Bernstein, Larry Swedroe, and Mebane Faber.
The Asset Allocation portfolios contain 12 to 13 asset classes, with some overlap. One could narrow the number of asset classes and likely lose little in return or risk.
Lowell
Lowell,
Thanks, that makes more sense to me. I have been using your old asset classes for many years. The biggest problem is deciding the allocation percents. Currently I am not allocating into gold or commodities. but have ETFs in all most other classes. Very similar to your asset allocation accounts.
I would be interested in the type of investor and account for each of your portfolios. (age risk goals taxable 401k Roth etc.)
Bob
Bob,
Several of the portfolios were initially set up to operate as endowment funds or to operate in perpetuity.
All portfolios are set up as retirement funds with ages ranging from 30 to 80.
Of the portfolios I report on, only one is currently and IRA. I do manage other IRA accounts, but no longer report on them publicly.
There is a general rule that as one ages it behooves one to reduce exposure to equities and increase the percentage in bonds and treasuries. I don’t support that idea totally. If one is seriously concerned about losing money invested in equities, place TSLOs under the equity holdings and review those settings every quarter to six months. If one is too conservative with their investments they are prone to loosing out on long running bull markets.
Lowell
Lowell,
Thanks for the feedback. My portfolio is mostly IRA and Roths. We are in the mandatory RMD phase which is adding funds to Taxable account. And we use QCD’s as you recommended some years ago. That was excellent advice.
Bob
Bob,
Thank you for the kind words.
For those who don’t know, QCD is a qualified charitable distribution.
What motivated me to look into QCDs was a change in the tax laws. Here in Oregon home owners are likely to hit the maximum tax deduction limit due to high property taxes. As a result, charitable contributions written on a standard taxable bank account will not benefit the bottom line of your taxes. Therefore, if you are making contributions to charitable organizations, do so out of your IRA account as it counts toward your Required Mandatory Distribution (RMD). This is assuming you are of an age where you are now required to pay taxes on your IRA.
Interesting that you mention QCDs, Bob, as we are in the middle of writing those checks this month as I want to take care of the RMDs very soon.
Lowell