How are the Optimal Finance™ Portfolios structured? The Optimal Finance™ Portfolios are designed in a "layered fashion" in that each portfolio contains the investable securities (stocks, bonds, ETFs, precious metals, commodities, currencies, or internationally based securities) from the previously listed portfolio. It then extends the previous research by containing additional security layers in finer detail, style, or strategy.
The following holds for both the domestic USA and the International listings: The starting point is the conservative portfolio. Then, for individuals with a greater risk tolerance, the moderate portfolio extends the conservative one by adding additional economic segments. Finally, for individuals with the greatest risk tolerance, the aggressive portfolio extends the moderate portfolio by including individual companies to the ETFs used in the moderate portfolio. The aggressive portfolio also contains additional long (buy) short (sell) strategies that include leveraged ETFs.
How do you choose securities (other than stocks)? We aim to use securities that can be added to an investment portfolio if desired; therefore, our focus is on ETFs rather than indexes. Other criteria are (1) availability, and (2) low cost structure. Otherwise, no preference was made to selecting one security over another. Realize that the listed analysis for each security is the starting point and not the finish line for your investment research. Some of the ETFs may hold component securities that are not of interest to you. For example, many of the Pacific/Asia ETFs have a large Australia weighting. Additionally, many of the country specific ETFs are driven by just a few dominant company weightings.
How do you choose stocks? The macro research is completed using the three research methodologies (econometrics, technical, and fundamental) on broad based ETFs. Individual stocks are chosen based on the same methodologies but within the assumed investor risk profile theme of the specific research report. As an example, the conservative report will have a focus on established market ETFs and/or transnational companies. Emerging market ETFs and/or developing country companies are reserved for the aggressive report.
What are the methodologies used in the research? The research methodology entails using econometric algorithms (probability theory with statistical analysis), technical relative strength analysis, and fundamental ratio analysis.1 Additionally, and to the extent possible, an analysis is completed on each of the three weighting methodologies: Market Capitalization, Equal, and Fundamental.
While no researcher can predictably forecast the nonlinear uncertain elements that are typical to both the economic business cycle and to the financial markets, using the three methodologies the SCR researchers attempt to provide the following: A current evaluation from country to company while taking into consideration global events that now affect the interconnected world economies and capital markets. Business, and therefore investment, is no longer strictly domestic.
Why are the actual returns not posted for the securities? With the number of potential portfolio designs for individuals being almost infinite, posting returns is impractical. This is especially true in that we post fresh financial research findings and potential strategies with each revision. However, there is an example portfolio at the bottom of each foundational research (D1-D8) report.
How do I choose the securities to invest in? Each foundational research (D1-D8) report has an example that is designed from the researched securities within that report; however, you can adjust the example based on your risk profile. We recommend maintaining a diversified portfolio with a low expense structure. This can be accomplished by keeping your trades infrequent, and thus, saving on the commissions generated from a churned portfolio. Entry and exit strategies are listed below; however, if you are uncomfortable making the security selections for your portfolio, please seek the advice of a licensed financial professional.
How do I interpret the relative strength charts? The measures are typically produced of a security over a broad economic statistic (GDP level or growth), or over a broad stock market statistic (S&P 500). A rising measure indicates relative strength for the security; a falling measure, relative weakness.
How do I look up stock quotes? There are numerous free stock quote sites (Yahoo! Finance, Google Finance, Reuters, etc.). We recommend that you choose one site and become skilled at using the research tools available.
Do you say when to sell stocks as well as buy them? For most investors, we recommend long term strategies in diversified portfolios rotating monthly monies into the highest yielding economic segment. Thus, we recommend a semi-passive strategy. Even experts admit that timing the market for individual securities is very difficult, if not impossible. However, if you still want a more active investment strategy, you can either follow the suggestions listed below, or obtain advice from your licensed financial advisor.
What defines International research from Global research? International research typically does not contain U.S. securities whereas Global research does. While this is the generally accepted definition, we have found some "international" securities that indirectly contained exposure to U.S. companies (multinational and transnational firms). Thus, when considering broad based securities, you might want inspect the components before investing.
1References: Econometric Analysis-Green, W., 2007, Econometric Analysis (6ed); Fundamental Analysis-Koller, T., M. Goedhart, and D. Wessels, 2005, Valuation: Measuring and Managing the Value of Companies (4ed) [Note: Also read any of Aswath Damodaran's valuation books.]; Technical Analysis-Pring, M., 2002, Technical Analysis Explained (4ed) [Note: This text is fundamental; however, we would recommend any of Martin Pring's books for self-study.]
Optimal Finance Analysis (Macro to Micro) – USA, Global (includes USA) & International (excludes USA) – by style, size, sector, asset class, weight, time, and technique: Stocks, bonds, ETFs (over 85 per report), commodities, currencies, companies, international & emerging markets, real estate. Methods: Econometric, Technical, and Fundamental.
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