ITA Wealth Management

This morning I was updating a portfolio and I thought readers would be interested in the process I use for an existing portfolio.  All the specific details are available to Premium readers.  Here are the steps I used this morning.

• The first step was to update the Thomas/Lalla/Herr spreadsheet containing all the transactions since launch a few months ago.
• Two asset classes were under target so those needed attention.
• The next step was to update the Quantext Portfolio Planner (QPP) software program.  For the particular portfolio I was updating, there were “open spots” to include individual stocks as the ETFs covered all the asset classes of interest.
• Which stocks to add to the portfolio, or at least include in the QPP analysis was the next question to be answered.  I pulled out seven stocks, upgraded each of them and selected only those in the “Buy” zone.  Those stocks were added to the QPP for analysis.  A short “movie” of this is available to PC readers.
• Limit orders were placed on a few of the selected stocks as well as bond and emerging markets ETFs.
• About mid-morning, VWO shares were added to the portfolio.  This still leaves the asset class under target, so another order will be added to bring the asset class back into balance.

Now that the market is down 40% to 50%, what should we have done differently.  This article provides some clues.  The time to have precious metals in the portfolio is when the market is riding high and there is a high probability we will see a decline.  Now that the market is in the pits, it is too late to be holding negatively correlated assets.  In my view, now, and over the next year, is the time to begin to set limit orders for those ETFs and stocks one intends to use to populate the portfolio over the next five years.

Do note there is a counter view that this market may decline another 50%.  Holding 5% to 10% in a negatively correlated asset class will be insufficient to protect an equity and bond oriented portfolio should such a decline occur.

My view, at this point in the market cycle, one should be moving toward a diversified portfolio that includes the “Big Six” ETFs, international ETF, emerging markets, REITs (not more than 5%), commodities, and bonds.  The reason for holding REITs to a low level is that there is going to be a second wave of mortgage foreclosures and we want to stay out of the way of that wave.