ETFYourself.com's simple 2-ETF model portfolio ROARs past another milestone
Equal-weighted S&P 500 just turned negative for the year. Because it only plays offense, not defense!
Hopefully ETFYourself subscribers will not get tired of hearing us cite our simple summary of my 30+ year approach to investing: “play offense AND defense at the same time.” Bull markets are when everyone wins. Bear market cycles are when investor arrogance gets punished, and balanced perspective and respecting the “story” the markets are telling us get rewarded.
Throughout the month of September, that seems to be what is playing out. And while the market is clearly (to us) saying “this ain’t over yet,” we just follow our investment process, and lean heavily on a basic idea:
A portfolio should, at all times, contain some elements of offense and defense
This used to mean own stocks and bonds. But with bond rates up and continuing higher for now, that mix doesn’t work like it used to. Bond prices get crushed, and cash-equivalent yields (short-term Treasury ETFs are what we use), are part of the “defense” in a way they have not been since early this century. THAT is how unique this time is…and to think, we launched ETFYourself.com just last week!
Above is a chart of the progress year to date of the simplest of our four model portfolios, the one that is part of our free subscription. It owns two ETFs at a time. One is either the SPY or the DIA to play “offense,” and the other is either BIL or SHY to play “defense.” In our other models (containing 4, 6, and 8 ETFs, respectively), defense can be similar, or it can extend to different parts of the bond yield curve, or include “inverse ETFs” that effectively short the market. That allows those portfolios to go “net short” and pursue larger gains during extended bear market cycles.
We think there’s a lot to learn about managing one’s money versus “picking securities” by simply seeing what is possible using only a basic, 2-ETF portfolio of offense and defense, whose allocation is driven by our proprietary ROAR Score, which we update every Thursday. That portfolio spent much of the summer trailing ETF symbol RSP, which follows the S&P 500 equal-weighted index. S&P 500 in the traditional form (SPY, IVV, VOO, etc.) is well ahead of RSP this year, since the stock market has really been about less than 10 giant companies doing so well, many investors were convinced the “market” was way up…but there were over 490 stocks that essentialy spent much of the year offsetting each other, gains and losses.
Yesterday, RSP fell to negative, including the dividend it pays. In other words, the average S&P 500 stock is now DOWN this year. Maybe that’s a bottoming signal, or maybe it is just another canary in the coal mine. We lean heavily toward the latter being the case. But when your mantra is playing offense and defense at the same time, you are constantly looking at all possibilities.