Why think small when it comes to portfolio construction? There are a few compelling reasons which I will explain below. Here are a few for starters.
- It is easy to track and there are fewer trades.
- With fewer trades, there is less slippage due to the bid-ask price spread.
- It takes less time to set stop-loss or Trailing Stop Loss Orders (TSLOs).
- Back-testing shows excellent results. A link is provided below. This is the primary reason for considering simplicity.
- Reduced portfolio churning should allow a holding (ETF) more time to build momentum.
Sample Investment Quiver
The small portfolio is made up of four ETFs plus SHV as a haven for excess cash. There are three equity asset classes and one treasury (TLT) for periods when equities are out-of-favor. If TLT is also in decline and not recommended, the portfolio will move into SHV as the shelter in place ETF.
Based on current conditions, this portfolio is 100% invested in QQQ. This recommendation is supported by the most recent Bullish Percent Indicator post.
By investing in only one ETF at a time, we don’t worry about correlation issues.
Experiment with your own ETFs and if you come up with a better combination of four to six ETFs, please post in the Comments section. The expectation is that this Sample portfolio will behave similar to the Dual Momentum portfolios.