A little over a month ago, I wrote a series of entries that focused on some very basic investments. Sister-in-law portfolio #5 contained five fundamental asset classes. If one held a similar portfolio back on October 1, 2007, what were the “Delta values” for such a portfolio? Below is a data table showing investors whether or not they should be invested in the market.
As one can easily see from the “red” coded Delta values, October 2007 was not a good time to be holding equities.
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Now suppose you were holding the five asset classes found in the Sister-in-Law Portfolio #5 on April 1, 2009. Was it a good time to be in equities?
Compare the Delta values with those found in the table presented yesterday. Note both the Future annualized projections and the “green” Delta values. Don’t pay much attention to bonds and cash as they are in the portfolio for diversification and protection to the down side rather than for the purpose of providing much return.
Yesterday, I posted the portfolio outlook of retiree, “Bob.” All the equity ETFs were over-valued on 12/31/2007, and we all know what happened in 2008. Here we are, eighteen months later, and we take a look at the same portfolio. This time the “Delta Index” column is not completely filled with red. Instead, we find three asset classes projected to do quite well over the next year. As you can see, they are: IWM, EFA, and ICF. The way the equation is constructed for this screen shot, we never expect the bond ETFs to show up all that well. Premium members see a different calculation for the bond ETFs.
Based on the following analysis, I would not add to the SPY holding and I likely would reduce any holdings in emerging markets (EEM).
Lowell
Photograph: Flower image captured this morning.
