We're waiting until tomorrow morning to post the SR update.
There are no changes to the DAA lineup for April. Read on for the full details.
DAA is a core portfolio strategy that is designed to help SMI readers share in some of a bull market’s gains, while minimizing (or even preventing) losses during bear markets. The strategy involves using exchange-traded funds to rotate among six asset classes, holding three at any one time.
DAA is a defensive, low-volatility strategy that nonetheless has generated impressive back-tested results when evaluated over full market cycles, demonstrating the power of "winning by not losing."
The recommended categories/ETFs for April are (in order of current momentum):
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
That quote, attributed to various humorists (including Mark Twain), seems especially appropriate right now. At a time like this, it’s important to discern what is really true. Since one of SMI’s goals is to simplify the complex — focusing on what you need to know rather than all there is to know — let’s take a look at what we know for sure that is certainly so.
We know that the world, and as a result, the markets, have been in turmoil because of the fast-moving COVID-19 pandemic. After setting a new record on February 19, it took a mere 16 trading sessions for the S&P 500 to enter bear market territory (a decline of at least -20%), making it by far the fastest switch from a bull- to bear-market in history. Previously, such a fall had taken an average of eight months!
We know that people feel the pain of loss more acutely than the pleasure of gain. So, given the speed and magnitude of this sell-off, it wouldn’t be surprising if you’re feeling some pain right now. All investors are.
But here’s what else we know — reassuring rock-solid truths from God’s Word and important lessons from market history.
Recent weeks have seen investors’ first encounter with “crash level” volatility since the financial crisis of 2008. During periods like these, most media and investor attention focuses on the stock market. That’s where the largest losses pile up, plus it’s the aspect of investing most familiar to individual investors.
Dig deeper though and you’ll find these crises typically arise from trouble in the credit (bond) markets. Companies can live with temporarily depressed stock prices, but many can’t function without access to the credit markets. Often, actions taken by the Federal Reserve that investors interpret as a reaction to falling stock prices actually are interventions targeted to keeping the credit markets running smoothly. Sadly, the past month has been anything but smooth.
To understand the bond landscape, it’s important to grasp the two axes on which bond investments pivot.
SMI offers two primary investing strategies for “basic” members. They are different in philosophy, the amount of attention they require, and the rate of return expected from each. Our preferred investing strategy is called Fund Upgrading, and is based on the idea that if you are willing to regularly monitor your mutual-fund holdings and replace laggards periodically, you can improve your returns. While Upgrading is relatively low-maintenance, it does require you to check your fund holdings each month and replace funds occasionally. If you don’t wish to do this yourself, a professionally managed version of Upgrading is available.
SMI also offers an investing strategy based on index funds called Just-the-Basics (JtB). JtB requires attention only once per year. The returns expected from JtB are lower over time than what we expect (and have received) from Upgrading. JtB makes the most sense for those in 401(k) plans that lack a sufficient number of quality fund options to make successful Upgrading within the plan possible. Here are the funds and percentage allocations we recommend for our Just-the-Basics indexing strategy.
The coronavirus has forced rapid change, both within the financial markets as well as to our normal habits and routines.
Millions of people woke up this morning to dramatically different circumstances than just a week ago — kids out of school, perhaps working remotely from home, and so on. Many are wondering if their jobs are in jeopardy as businesses close, or at least scale back due to reduced demand. And most tragically, a small but growing number didn't wake up this morning as a result of the virus. It's a sobering and potentially scary moment.
And that's before we even get to the financial markets, which came unglued last week. The stock market plunged from an all-time high on February 19 to official bear market territory last week, the fastest descent into a -20% bear market ever. Signs of stress have been everywhere, from traditional safe havens like gold falling sharply last week along with everything else, to even the U.S. Treasury market having liquidity trouble. When U.S. Treasuries — the safest security out there and the traditional "flight to safety" destination during chaotic periods — are having trouble trading and actually see their yields rising (and prices declining) on panic days like last Thursday, you know things have reached historic extremes. Volatility has been incredible, with the S&P 500 gaining or losing more than 4% each day last week, the first time that has happened since 1929.
SMI's Bear Alert indicator officially triggered this past Friday. That simply means the S&P 500 put in its first weekly (Friday) close at a level more than -15% below the prior high.
Given the unprecedented market action of the past few weeks, I want to give everyone an update on the status of our main actively managed strategies. We've been writing a lot throughout this crisis, but I think it will be helpful to consolidate all of the latest thinking in one place so there's no uncertainty about where things stand.
Yesterday was the worst single day many investors have ever experienced, as the S&P 500 index fell -7.6%. That was the 7th-worst day for the S&P 500 since 1950.
And as Nick Maggiulli points out, for most younger investors it was "the worst day of our investment lives," while most older investors — who may have lived through worse during the 2008 meltdown — probably felt yesterday more deeply simply by virtue of having more money at stake than they did back in 2008.
(I'd quibble with that last thought, simply because we had four days as bad or worse than yesterday between September 29-December 1 of 2008. The cumulative impact of those was much worse than yesterday, at least in my memory.)
Thankfully, SMI investors had DAA to cushion the blow yesterday. That portion of our portfolio actually gaining +0.28% yesterday was a lifesaver, roughly cutting the loss of a 50/40/10 portfolio in half. And of course, the more bonds a person had in the Upgrading portion of their portfolio, the more any downside was mitigated even beyond the impact of DAA.