The Basic Portfolio & The Delta Factor

When setting up a Basic Portfolio, investors want to include at least the "Big Six" asset classes from the U.S. equities market.  Then add some bonds, developed international markets, emerging markets, and REITs.  For larger portfolios, commodities, international REITs, and international bonds are common additions. Remember, this is a basic or core portfolio.

This blog entry will show how the Delta Factor can play a role in improving portfolio performance.  Right now we place risk or uncertainty in the background, but not completely forgotten.  To gain confidence in the merits of the Delta Factor we need to see what a Basic Portfolio looked like near the last market high and low.  Let's first see what the different classes were telling us back on October 1, 2007 when the stock market was near its recent high.  Before getting into the details, here is a QPP analysis of the Basic Portfolio.

Note that the portfolio does not look to shabby.  The Return/Uncertainty ratio could be higher, but overall, it looks acceptable considering I did nothing special with the asset allocation plan.

Note that I consider this Critical Information.

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Market Conditions: Where Are We?

Technical Analysis of Broad Market

In a recent article from the American Association of Individual Investors (AAII), one writer wrote the following. "I recommend that investors form a major market opinion first.  Is it a long-term bull market or bear market?  Bear markets should not deter investment, but being aware of them is important in order to determine how aggressive you should be and how much leeway you should allow for stocks with less than ideal characteristics."

While I think it is difficult, if not impossible to "form a major market opinion," I do have some graphs to fall back upon to see what is happening in the broad market.  To picture the U.S. equities market, I use one of Vanguard's Total Market funds or ETFs.  My preferences are the VTSMX or VTI.  In the following StockChart I show what is happening with the VTI ETF.

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