There are investors who hold the majority of their assets in real estate instead of the stock market. When REIT investors convert property to cash, the question arises – what do I do with that sum of money to keep it growing? Here are suggestions with an underlying philosophy of diversification. Divide the $300,000 or whatever the sum amounts to into three or four different portfolios. Portfolio D is included for purposes of generating additional income.
Portfolio A: This first portfolio is managed using the Strategic Asset Allocation Model (SAAM). To learn more about the philosophy of this model, follow the Schrodinger, Copernicus, Pasteur, and Bethe on this blog. For additional information, read one or two of the books from the Top Ten Investment Books. I recommend first reading #6 then #7. [Tomorrow I will review the Copernicus portfolio.]
Below is the Dashboard for the Bethe portfolio, an example of what is meant by the SAAM. Eight asset classes are used to populate this portfolio. Here are my suggestions for each asset class. The target percentages have a white background. For a $100,000 portfolio one would invest $13,000 in VTI to populate Large-Cap Blend.
- Large-Cap Blend (VTI)
- Large-Cap Value (VTV)
- Mid-Cap Value (VOE)
- Small-Cap Value (VBR)
- Bonds & Income (BIV) There are other options.
- International Equities (VEA)
- Emerging Markets (VWO)
- International Bonds (PCY or BWX)
Once the SAAM or Portfolio A is set up, all the manager needs to do is keep the various asset classes in balance. This portfolio will produce a yield in the range of two to three percent.
Portfolio B: The second portfolio is perhaps the easiest to manage provided one has access to the Kipling REDA HA Version 2.0 spreadsheet. This second $100,000 is invested using what is known as the Dual Momentum Model (DMM). For more information, follow the reviews for the Maxwell, Euclid, Aristotle, and Galileo portfolios as each are managed using the DM Model. Here is an example.
Below is an example of a $100,000 portfolio. The current recommendations is to purchase 820 shares of VTI. One could round this down to 800 shares and keep a few dollars in cash. The Maxwell portfolio is coming up for review next week so follow that update for current information.
Portfolio C: The third portfolio follows what is known as the Tranche Momentum Model (TMM). This is the most difficult to understand of these first three investing models. To understand how the TMM works, follow reviews of these portfolios: Curie, Newton, Einstein, Kepler, Bohr, Gauss, and Huygens. On Friday I will be reviewing the Bohr Portfolio. Yesterday I updated the Gauss Portfolio. Here is the link.
In Portfolio D I will show what the primary worksheet looks like if one uses dividend oriented ETFs.
Portfolio D: I added this fourth option if income is of primary importance. The goal of Portfolio D is to yield a minimum of 3.0%. I’ve selected ten high yield Exchange Traded Funds (ETFs) for this high yield portfolio. To keep management as simple as possible, concentrate on ETFs that are ranked one (1) through five (5) in the Group column. That is the fourth column from the right. Overweight ETFs that show green cells for the two HA indicators. Right now those ETFs are REM and VPU.
This multi-portfolio approach may sound overly complex to investing $300,000 or even several million. Begin by setting up Portfolio A and wait until you are comfortable managing that portfolio. Then open up Portfolio B. This one is a “piece of cake” to manage. Portfolios C and D are both managed using the TMM. Over time portfolio owners will become familiar with the Kipling spreadsheet and this model too will be rather routine.
One other suggestion is to scatter the portfolio review periods throughout the month as I do on this blog. If you go on vacation, just pick up the reviews a few months later or carry the data with you on a flash drive as I do. Portfolio A could go a year without a review.
These are my thoughts on how to set up portfolios with diversification as a guiding principle. These portfolios should produce an income of $6,000 to $10,000 per year from a corpus of $300,000.
Questions and Comments are always welcome.