After totally revamping things over the past couple of months, here is my 2021 investment strategy.

I’m hoping that this will now be a permanent strategy.

The main features are:

  • Building to a net 120 long position. No hedges or short positions.
  • Value tilt.
  • Adding leveraged ETFs on a permanent basis. (Will be writing a separate, detailed post about this soon).
  • Minimal foreign exposure.
  • REITs at 10%
  • Planning to add small exposures to wine and collectables. Mostly for fun.

So then, here it is:

Investment Strategy: 2021 allocations.

Cash

You might notice this does not include a line item for cash. I have a set amount I keep on hand for monthly expenses and sweep the rest into investment accounts every 2-4 weeks. For unexpected expenses I use credit cards (gives me a month to either build up more cash or liquidate if necessary) and an SBLOC for anything larger. If I’m planning on making just a slightly larger expense than what I keep on hand, I will just start building additional cash as necessary a couple of months ahead of time.

Value Tilt

Even though Growth stocks have been outperforming the past few years, I still believe that Value will outperform over a longer time horizon, as noted in Stocks for the Long Run.

Net 120 Long

While Jeremy Siegel claims the most aggressive investors should be net 140 long stocks, I just can’t quite stomach that. So I’m going with the most that still leaves me sleeping soundly at night.

Buying Leveraged ETFs

For many years I subscribed to the notion that Leveraged ETFs and ETNs should only be held on a very short term basis due to volatility decay. I was searching for other ways to build leverage into my investment strategy when I came across a couple of articles that have convinced me otherwise. Unfortunately, putting these instruments into any kind of optimizer produces ridiculous results (sort of like most optimizer results), so I’ve settled on 10% as an amount of my portfolio I’m willing to lose even if they go to zero. I don’t think they will, though, as I will lay out in a detailed post I’m working on now.

International Stocks

I have had exposure to international stocks for many years. It’s always the dog of the portfolio. I thought about finally taking the allocation to zero, but with recent events in the US, I still felt I needed some exposure here as a hedge. I may still take this percentage down in the coming years.

Some Key Reasons This Might Not Work For Everyone

  • I don’t have any (expected) expenses coming up that can’t be met by my income.
  • I have multiple backups (CCs and SBLOC) for large unexpected expenses.
  • I am willing to take on significantly more risk in my portfolio than most people.
  • I can ride out the increased volatility this will produce.

Wine & Collectables

0.5% in each is a cap, not something I’m going to buy fully into right away. This is totally just for fun, if it goes to zero I’m fine just mentally writing it off as an entertainment expense. But there is an opportunity to make a return too.

Expectations

While I usually like Portfolio Visualizer for analyzing my investment strategy, it’s not really set up to handle a portfolio like this. Their inputs can’t handle > 100% exposure and often their data doesn’t go back far enough to give me much confidence. So I instead used the Bogleheads community developed back tester (v. 17). Here’s what is shows:

Investment Strategy: 2021 summary statistics

Note: obviously crypto, wine, and collectables are not available in the backtester, I just rolled their allocations into the REIT category for simplicity and because I imagine the returns and volatility will most closely match that asset class.