Portfolios vs Strategies

[Scott Ajax]

What is the difference between a Portfolio and a Strategy and, none of my business, but why don’t you do a better job of explaining that difference on your product marketing website?

[Jerome]

A portfolio is a set of strategies. And a strategy is basically an algorithm that tells you which stocks/ETF to trade.
Each strategy has its own return and volatility.
To fit your targeting risk/return, it is better to use multiple strategies (which will compose your portfolio).

[Vangelis]

Exactly right. Thank you Jerome!

[Scott Ajax]

Great, thanks.

More questions! Let’s say I’ve picked a strategy, which unfortunately would likely have started (had I gotten this far 2 months ago) with the Bond ETF Rotation Strategy, because I’m conservative. Clearly that strategy in hindsight is one to avoid though, but that’s a discussion for another thread. So let’s say I pick Dow 30: I see where it has 6 stocks/ETFs currently listed (well, not current since I’m not paying but assume I am paying so I see the current list) with allocations associated with each stock/etf. Great, I start with that.

Question 1: What is the maximum frequency at which this strategies current stocks/ETFs and associated allocations might change – is that monthly? If so – last day of each month? Last Friday of each month?

Question 2: How are those changes presented to me as a paying subscriber? Do I get an email that basically just tells me to go look at the Strategy page where I manually look for changes? What is a typical change and what is a more “extreme change”? For example, current (well not current, again I’m not paying yet) allocation tells me: 36% GLD, 24% GSY, 10% JNJ, 10% MCD, 10% MRK, 10% VZ. After a month – am I likely to see something entirely different resulting in me having to sell all 6 and buy 6 new ones? Or is it always those 6 and all that will change is the allocation? If the latter, is my notification from LI going to tell me “move 5% from GLD to JNJ” or is that math up to me from looking at current allocations versus what I’m invested in? I’m trying to understand what the exercise of a true-up looks like basically.

Thanks again.

[Mark Vincent]

1. All strategies are updated Monthly Except for Maximum Yield Strategy (MYRS) which is updated twice per month. If you are using the website the strategies will be updated on the 1st of the month and 15th for MYRS. If you are using Quantrader which I highly recommend then you can get the allocations after the price data is available (A day earlier).
2. What strategies/portfolios you see is driven by your plan. The process to calculate is basically what you have today plus or minus what the strategy recommends. The website and Quantrader has an allocation tool and will help you know the current allocations. You have to calculate what to buy and sell.

A typical change (Turnover) is hard to calculate it varies by strategy and month. If you use Quantrader you can download the changes and analyze it to calculate turnover. The turnover drives the amount of trades and slippage. Slippage is not a problem since the most assets are highly liquid. There is trading each month and you will see something different. Different assets and different allocations. The exact amount again is hard to calculate. For me running 6 portfolios it is less than an hour per month of trading. I have created a spreadsheet that calculates it for me. The Quantrader software has a function called Cons. Allocation it helps you calculate any strategy from LI or your own. The math again is up to you for what to sell and buy. I took a quick look at the Dow 30 Strategy on the website and most months the stocks change 2 out of 4 and sometimes 3 out of 4. The Hedge changes also and the exact amount is hard to calculate. If you want more details on the calculation it is basically what you have today plus or minus the new recommendations.
Hope this helps.

Cheers,
Mark V.

[Patrick @ Logical-Invest]

When looking at any strategy or portfolio page, you can click the “Holdings” link above the graph to see the past holdings for each period. Also, above the Allocations table, there is an icon with a down arrow to download the current allocations as a CSV file that can be used to make your own calculations. If you are not logged in, it will contain the previous months holdings.

These two brokers have features to facilitate rebalancing:

Interactive Brokers can import a CSV file containing target allocations as percents of your account value. It will then create the necessary buy and sell trades which can be submitted with one click. This method only takes about 10 minutes each month. https://www.youtube.com/watch?v=YAMeSeh0WbY

M1 Finance has a concept called pies which are similar to our strategies. Each pie contains a set of stocks/ETFs with target allocations. Your account then contains multiple pies with target allocations, just like our portfolios. You only have to update the stocks and percent allocations each month and M1 will do the rebalancing. It uses daily trading windows instead of allowing users to execute their own trades. It has no commissions. One downside is the account performance it displays does not properly account for inflows, outflows, dividends, etc.. so it is usually not accurate.

Best,
Pat

[Mark Vincent]

Thanks Pat I did not know any of that.

[Scott Ajax]

Looks like a reasonable manual excel exercise and then some tedious trade execution for landlubbers like myself using Vanguard, for example, rather than a fancy fast trading tool.

Thanks

[Patrick @ Logical-Invest]

M1 Finance is designed for “casual” investors with an easy to use web interface and would not require any spreadsheets. Interactive Brokers is better for more advanced investors and has a bit of a learning curve.

[Author]

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