Portfolio strategies
Based on readings, I came up with some basic ideas on portfolio strategies you can follow based on your investing style.
Step 1: Move on from Mutual Funds (easy solution at high cost)
But first, let’s remove the brainwashing salespeople at the bank pushing you “Mutual funds” for an easy solution at very high cost.
There are many books out there like “Beat the banks”, “The Little book of common sense investing”, etc.
The main idea is that most of mutual funds charge high fees and portfolio managers have a hard time beating the index because they charge too much high fees. When choosing mutual funds as an investment strategy, the problem is not choosing the right stock, it’s choosing the right portfolio manager. Solving a problem with another problem.
“The less fees you pay, the more money goes into your pocket.”
Step 2: INDEX strategy
(1) “Index fund” strategy: If you have no other choice than mutual funds, might as well go with the lowest fees mutual fund, which replicate the market. “Index fund”. The only advantage it has over Index ETF is that there are no trading cost to buy/ sell it. Nevertheless, the hidden MER fees will slowly eat your returns.
(2) “Index ETF” strategy: Buy index and rebalance them.
Basically, instead of stock picking, you just buy the whole market. The index is a strategy that weight stocks based on their market cap (Size). If the stock go up, increased weight naturally. If stock go down, it decreases it sized.
Low fees. Need to rebalance them on a monthly or quarterly basis.
Step 3: “Do-it-yourself” strategy
DIY + ETF: Mix of stock and ETF
Logic: I like this strategy when you have less than $10,000 to invest. It allows you to stock pick for “Sectors” you are comfortable with and let the ETF cover sectors you don’t want to manage.
· e.g.: You know a lot of about the US market, but not China. It’s better to just hold a China ETF and stock picking for US companies.
Part 1: Build a strong “fortress” of good companies
Part 2: Have 5-10% invested in “alternative investment”
Analogy: A strong fortress who send some “ninjas” for exploration. If the “ninjas” come back with gold. Good job! If they die, too bad. Nevertheless, the fortress still continue to live and grow stronger.
The idea is to have a strong 90-95% of the portfolio in companies that will replicate the market returns at similar market risk. The remaining 5-10% are here to be high-risk and provide a “chance” to have higher returns without killing your “wealth preservation.”
No-risk, free-money strategy: (for Ninja)
· The idea here is to find a very high risk gamble investment you think will double in the next few weeks or month.
· You put the money in ($1,000). Wait for it to double (1,000* 200% = $2,000). Then, you sell half ($1,000) (Money out of the investment).
· Whatever happen to the $1,000 left is free money and no risk, because you already got your initial investment back.
· It’s all about ROI (Return on Investment).
Example below:
This is an example I am using at the moment (March 2019). 95% of the portfolio is into something relatively average risk. 5% into speculation.
75% is in ETF or Blue chips companies.
20% into growth stock.I don’t stock pick much for US, so I go for an index ETF (e.g.: SPY) , same with China. (e.g.: MCHI)
For Canada blue chips, I just go for the banks. Main reason is the dividends, but that’s another topic for stock picking section.The idea here is to have a model in place and slowly apply it to your investment portfolio. Maybe you have only $2,000 today and money is slowly coming in, so it’s better to see a big picture and slowly enter your position into the market.
The portfolio model is the foundation. From there, there are multiple paths to succeed and reach your goals.
“Everyone has their own style of investment.”
Backtesting tools: “Test your strategy.”
https://www.portfoliovisualizer.com/backtest-portfolio
SimpleLifeBalancing.