Portfolio Preparation for Euclid and Maxwell Portfolios

In preparation to activate the return-uncertainty plan for the two under performing portfolios, I set up several sell moves for each portfolio.  The first thing I did was to place trailing stop loss orders for each ETF now in the portfolio, but not part of the future plan.  Shares of VOE, VBR, VOT, VO, VTV, and VSS will be sold when the strike price is hit for each ETF.

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Updating the Curie Portfolio: 5 October 2011

Below is the standard review for the Curie Portfolio.  Yesterday, all remaining shares of the ultra-short ETF, SDS, were sold out of the Curie.  The two SDS sales gave us a 7.8% Internal Rate of Return (IRR) for this particular ETF. adding value to the portfolio.  For a long time it looked like a loss would result from holding SDS, but the recent major market decline finally brought a profit for this ultra-short ETF.

The first thing we look at when reviewing a portfolio is to see how the asset allocation plan is holding up.  Below is the Dashboard worksheet from the TLH Spreadsheet showing this information.  Click on the screen shot to see the expanded version.  Four asset classes are still under target while bonds & income are above target.  Since bonds are holding up, it is of no concern this asset class remains above our target of 7.0%.  Seven percent is a very low allocation for bonds, but this investor has a "bond equivalent" in the form of both social security and a very good pension.  Deriving income through bonds is not an issue and that is the reason for holding a low bond allocation in this portfolio.

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Developing a Portfolio Plan

Basic Suggestions in Portfolio Development*

In the beginning stages of setting up a portfolio plan, there are a few essential decisions investors make. Here are a few hints to consider.

  • Follow "The Golden Rule of Investing." Save as much as you can as early as you can. Develop a savings plan as there is no avoiding this step.
  • Live below your means.  Learn self-discipline and stop spending on trivial material goods.
    • Avoid Credit Card debt as it will kill your chances of success.
  • Invest in index funds or index ETFs.  Many examples of how to do this are provided throughout this blog.
    • Keep expenses low. Use commission free ETFs available through TDAmeritrade.
  • Diversify your portfolio across the world market. 
    • Learn what is meant by asset allocation.  Work to find assets that have low correlation with each other.  This is difficult in a global economy.
  • Keep It Simple.  Use index funds instead of picking individual stocks.

The “Golden Rule of Investing” is to save as much as you can as early as you can.  That simple guideline is fundamental to any investment plan and it is critical to know why the word early is so important.  What comes second (portfolio planning) is also important, but it cannot be implemented unless one has saved money for investing. In this post, we assume the reader has a saving plan in place and they are adding money to some saving or broker account on a regular basis.  Regardless of how small the amount saved, it is vital to continue to add to the account on a systematic basis.  With the saving plan assumption locked down we move on to the Strategic Asset Allocation (SAA) plan. Examine the data table below.


Asset Classes

Value Core Growth      
Lg-Cap Lg-Cap Lg-Cap      
Mid-Cap Mid-Cap Mid-Cap      
Small-Cap Small-Cap Small-Cap      
Cash Bonds/Income International Emerg. Mkts REITs Commodities


What is meant by the idea of developing an investment plan? Exactly what does this entail and is it complicated? Let me make it as simple as possible using the above data table.

  • Under the Value, Core, and Growth headings, concentrate on the three by three matrix or nine boxes.  Consider those the “Big Nine” and if we eliminate Core, we reduce the number of asset classes to the “Big Six.”  For portfolios in excess of $25,000, one should consider setting up an SAA plan to include the “Big Six” asset classes.  Since the "Big Six" are highly correlated, we do show other options.  Just keep up-to-date reading the daily posts that how up on this blog.  Follow the development of how we are working to improve performance of the Euclid and Maxwell portfolios.
  • In row five we add the asset classes of Cash, Bonds/Income, International (developed markets), Emerging Markets, REITs, and Commodities.  For portfolios in excess of several hundred thousand dollars, one might add International Bonds and International REITs.  International REITs (RWX) is throwing off such a nice dividend, I am now including it in smaller portfolios.  For now, we will limit ourselves to 12 or 15 asset classes, depending on whether we wish to include the three Core asset classes in our count.  The smaller the portfolio, the fewer the asset classes one is likely to include in the SAA plan.

Developing a portfolio plan requires one to decide which asset classes to include in the portfolio.  While you many not have the cash available to populate all asset classes, it is a good idea to plan for your “ultimate” portfolio. Once you have decided on which asset classes to include, you are on your way with the second major step toward setting up a portfolio plan.  We highly recommend investors use asset classes for their SAA plan rather than market sectors.  The logic is quite simple.  The 12 or 15 asset classes cover all market sectors, but if one only uses market sectors as the core for the portfolio, major parts of the world markets will be missing from the portfolio.  Asset classes cover all sectors, but sectors do not cover all asset classes. This is about diversification and we do not want to place unnecessary constraints on a portfolio by confining or limiting investments to market sectors.

  • One more major point.  The most difficult decision is yet to come and that is – what percentage do we allocate to each asset class?  That decision is very personal and it depends on different circumstances.  Many examples are given throughout this blog.  I suggest interested investors watch the different portfolios when they are updated and then track one of those portfolios carefully. Individual help is given to those who ask for it.
  • Subscribe for a Platinum membership and gain access to all aspects of portfolio construction, portfolio management, and portfolio monitoring.

* Much of this material was brought forth from a prior blog entry.  Updated information was added.

“Delta Factor” for Maxwell & Euclid Portfolios

Initially, the plan is to hold only five equity ETFs in the Maxwell and Euclid portfolios.  Those five are: VTI, VEU, VWO, VNQ, and RWX.  Yes, there will be bond and income ETFs, but the equity investments will be confined to five ETFs – at least at the beginning of this experiment.  At the close of the market on October 4, 2011, what is the "Delta Factor" data telling investors.  Check the table below for some interesting results.

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