My investment strategy is rather simple considering my ambitious goal. It is the implementation of well-known academic investment principles combined with my market experience:
A passively managed portfolio- with cost efficient ETF’s
- broadly diversified,
- enhanced with tight risk and loss control and
- rebalanced once a month.
This is nothing more than what anybody would come up with after researching the subject thoroughly. At the same time this is the opposite of what the financial industry proposes to its clients. Don’t pay too much fees. In addition a well diverisified portfolio may underperform in a bull market, but will mitigate financial disaster in a bear market. No stock picking, no active trading, no stress!
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The strength of my approach:
- clear and easy to follow investment decisions.
- investment rules that have been time proven under all market conditions.
- the liberation from the emotional rollercoaster of an active investing.
- the freedom to focus on the really important things in life.
It took quite some time to accept that I am the single biggest obstacle to the success of my investment. Ask yourself whether you are the master or the slave of your investment decisions.
Rule based investment is not just an investment style, it is a lifestyle!
You don’t have to be an investment guru to invest successfully. The following simple six rules will do the job:
Invest passive!
Why all the hassle of stock picking when passive investments most probably performs better?
Diversify!
The only free lunch in investment is diversification. My portfolio is well diversified over different asset classes (stocks, bonds, real assets) as well as over different risk factors (equity, credit, inflation).
Control your cost!
ETFs are key. They are extremly liquid and cost efficient. The average management fee of my ETF universe is around 0.30% per annum. For that fee a traditional money manager would not even pick up the phone.
Manage your risk!
All assets are weighted with the “equal risk parity” method that means every position bears the same risk. This does not prevent from disaster, but makes it more unlikely.
Cut your losses!
I cut my losses by eliminating all assets that show a negative trend. Obviously no “Holy Grail”, but it helps limit the losses.
Follow the rules!
Most importantly I always follow the rules: No second guessing, no hesitating. The worst strategy is to chan ge your strategy every day.
The first choice for a passive investor are Exchange Traded Funds (ETF). My portfolio contains fourteen ETFs that represent more than 13’000 single assets in 80 different countries.
- US stocks,
- Developed stocks (ex-usa),
- Emerging market stocks,
- High dividend stocks,
- Small cap stocks,
- Real estate stocks,
- High grade bonds,
- High yield bonds,
- International bonds,
- US 30-year treasury bonds,
- Emerging market bonds,
- Inflation-linked bonds,
- Spot Gold,
- Diversified commodities.
Graph: Dark blue > 30% allocation, light blue < 5% allocation, gray = no allocation.
The advantage of rule based investments is that it is possible to back test a strategy to historic market data. My investment strategy would have outperformed both – a US pension fund benchmark and a Swiss pension fund benchmark – with significantly lower drawdown. Obviously this is a purely theoretical view. Remember that my aim is not to beat the market, but to relatively outperform. Past performance is by no means a guarantee for future results.
Graph: green = ePortfolio – my portfolio strategy, red = US benchmark – S&P target risk conservative index, yellow = Swiss benchmark – Pictet BVG-1993 index.