Idea for alternative use of the v-Wave....................
This AM I was looking at Value Line and thinking about their "Appreciation Potential" on which we base our v-Wave cash indicator. I have felt the v-Wave has been better at showing off excellent bullish opportunities than it has been for warning us of bearish markets.
We currently use the v-Wave to gauge how much cash is appropriate for an AIM holding and/or for gauging how much cash should be set aside for a new AIM engine. This is fine, but I was thinking of an alternative use today.
How about if one (especially retired people) used the v-Wave as a way of changing the make-up of their portfolio relative to Income and Stock investments? We need to remember that Value Line's Appreciation Potential (VLAP) is a guess about future performance in the stock market. If their guess is that there isn't much potential for the next 3-5 years (as it is now) it doesn't mean there's a bear market coming, just that rewards are going to be historically low over that time frame.
Low potential stock market return bodes well for "income" type investments, high dividend payers such as utilities, govt or corp bonds and maybe REITs. If one is going to risk one's money for stock returns of 5% or 7.5%, wouldn't it make sense to shift to similar returns from more stable income generators?
So, with the v-Wave showing ~62% right now we traditionally would want our AIM accounts to be selling with that as a target cash level. (or starting new investments with that level) How about using it as a dynamic Income/Growth allocation device? Under this method one would be shifting one's portfolio from Stocks to Income components based on poor stock market potential. 62% in income components could bode well now with low appreciation potential. Back in 2008-09 it was telling us to be about 10% to 15% in cash. How about if we used that to signal being 10% to 15% in "income" components with the remainder being in Stocks or Stock Funds? Here it is nearly 10 years along in history and such a heavy allocation to stocks/stock funds would look (in hindsight) somewhat brilliant.
In 2007 it would have been suggesting a very heavy allocation to income generators, like it is currently. Wouldn't that have been more comforting than a portfolio heavy with growth stocks (even if you didn't know the "crash" of 2008 was coming)?
As the stock market potential evaporated since that awful time, we would be gradually shifting our portfolios to an income heavy one. This would be adding some downside protection as well as providing some income while the stock market is "slow."
The v-Wave could be used for both its traditional goal along with this new overall portfolio management goal. AIM will handle the stock side (plus its cash) while the income side provides some excellent portfolio insurance (yield and stability).
Thoughts anyone???
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