How to Build Your Own “Profit Dashboard”
Warren Buffett once expressed an investment truism this way: “No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”
Translation: If you want to get rich, you must patiently pursue time-proven methods.
In my previous issue, I asked you to consider your long-term investment needs based on your stage in life. Armed with that data, let’s move on to the next phase, to establish your portfolio allocation dashboard.
Below, we also unveil a trading methodology that can “turbocharge” your portfolio for market-beating gains.
Our team suggests these age-contingent categories: 1) relative youth (15 years from retirement); 2) middle age (5-15 years from retirement); and 3) advanced middle age/senior citizen (5 years from retirement).
For the three age categories, here are the suggested allocations:
- Cash 10%; Bonds 10%; stocks 70%; metals 10%
- Cash 25%; Bonds 25%; stocks 25%; metals 25%
- Cash 55%; Bonds 15%; stocks 15%; metals 15%
Choose a category based not only on your approximate age, but also on your tolerance for risk. As history amply shows, you’ll have to withstand a lot of bumps along the way.
If your portfolio is heavily weighted toward stocks and the stock market takes a sharp turn for the worse when you’re in your 40s, you still have plenty of time to bounce back. That’s why our recommended allocations get safer as you get older.
But remember: If you’re still several years away from retirement, the safer you play it, the less effective your wealth-building plan.
As 2017 approaches and a new and unpredictable president takes America’s reins, you should consider re-balancing your portfolio to accommodate the likely economic, business and market trends of the coming new year. In a year that’s bound to be fraught with volatility, diversification will provide an important buffer.
Protecting your portfolio from disaster…
Jim Fink, chief investment strategist of Options for Income and Velocity Trader, says: “Don’t put all of your eggs in one basket.” The consequences can be disastrous.
Jim advises you to diversify not just across assets and market capitalization, but also across sectors.
Here are four guidelines to follow:
1) Diversify among stocks and sectors
Stocks that are Wall Street darlings one day can become goats the next. When the lemmings pile into a hot stock, it’s tempting to think you’ve found a sure thing, but the investment landscape is littered with the bleached bones of companies that once seemed like sure things.
Same rule applies to sectors. Consider the dot-com bubble that ran from 1995 to
2) Spread your money among several asset classes
Don’t just stick to components of the S&P 500 or the Dow Jones Industrial Average. Spread your portfolio among value, small-cap, large-cap, growth and dividend stocks.
3) Spread your investments geographically
Don’t simply focus on specific country or regional funds, or on emerging markets. The best course of action is to diversify around the world through international index funds.
4) Don’t neglect fixed income
The degree of fixed income you need depends on your age. The closer you get to retirement, the greater weighting you should place on fixed-income investments such as bonds.
No easy short cuts…
Many investors are becoming enamored with asset-allocation mutual funds, also known as “target date” funds, which try to provide investors with portfolio allocations predicated on their age, risk tolerance and investment objectives. However, even this “solution” is too standardized and doesn’t address highly individual requirements.
According to the financial research firm Ibbotson Associates, about a half-trillion dollars are now invested in target date funds. Target date funds are simple to use — you pick the target date fund that will mature closest to your designated retirement date.
These funds are typically issued in five-year increments — 2015, 2020, 2025, 2030, etc. As the target date approaches, the fund’s allocation grows more conservative. The exposure to equities is diminished as the allocation to bonds and cash increases, reducing risk and volatility.
Target date funds would seem to be the perfect solution to the challenge of asset allocation, but as Warren Buffett warned us, there are no easy shortcuts when it comes to investing.
It’s never advisable to put your investments on autopilot. One problem with target date funds is that their allocations are based on past returns, without accounting for the current market environment. Many also entail high expense burdens.
As you determine asset allocations, stay focused on the economic big picture, not the markets’ quarter-to-quarter roller coaster rides. To be sure, you must calibrate your allocations according to existing conditions as well as projected future trends, but you should also ignore temporary market blips.
Got a question about asset allocation… or any other investment topic? Drop me a line: email@example.com — John Persinos
Even as you create an asset allocation dashboard, it’s still worth it to allocate a portion of your account toward turbocharged growth opportunities. And if you’re looking for outsized moneymaking opportunities for that portion of your portfolio, turn to Jim Fink.
As many of you know, he grew $50,000 into $5 million by using his proprietary trading methods. But even with his proven track record, I was never quite comfortable with the new method of investing Jim unveiled late last year.
Then our performance analyst crunched some numbers, and my opinion immediately changed. He found that Jim’s open and closed recommendations inside Velocity Trader have an average gain of over 25% since inception. That includes losers and outpaces the market nearly 4-to-1.