What are the limitations of stock/bond-only ETF portfolios?
The CCM Market Model tracks over 200 ETFs, allowing us to search for the best opportunities based on present-day facts, monitored on multiple timeframes. Many advisors build portfolios comprised of only stocks and bonds, which means some of the best investment opportunities are not even considered. For example, the hard data was clearly favorable for gold relative to stocks between late 2001 and the second half of 2011. Therefore, it was prudent to consider maintaining some exposure to gold during that period.
Facts Tell Us When To Consider Any ETF Or Asset Class
We are not advocating a permanent place for gold, or any asset class, in our portfolios. Our approach monitors stocks, bonds, precious metals, physical commodities, currencies, sectors, regions of the globe, and individual countries. We have no bias for or against any ETF, including those that track physical gold. The objective is to consider all options with an open mind and build a diversified portfolio comprised of the best risk-reward ETFs, based 100% on present day facts in the context of market and human history.
FOLLOWING OVER 200 ETFS CAN ADD VALUE
Our approach looks for ETFs that are scoring well on multiple timeframes (daily, weekly, monthly, yearly), which means we are not interested in chasing the ETF flavor of the month or trading frequently. In most market profiles, a mix of stock and bond ETFs works well. However in some periods, investing in a strong secular trend outside of the stock/bond realm can significantly impact performance. For example, as shown in the performance graph below, gold gained over 550% in a period during which stocks lost money and bonds produced steady returns.
A SMALL STAKE CAN MAKE A BIG DIFFERENCE
Since the gold ETF (GLD) was not trading in the 2001-2004 period, we looked at the impact of adding gold to a stock/bond portfolio between 12/31/2004 and 12/31/2011. A portfolio of 50% stocks (SPY) and 50% bonds (AGG) returned 31.84%. Over the same period, adding a 10% exposure to physical gold (GLD) would have boosted returns to 53.36%.