Hi Allen, Re: Portfolio Stock Fund/Income Fund makeup............
I don't believe shifting the ratio will work every time we see an upset. However, if it worked 4 times out of 5 it would still have potential. Historically income and growth investments tend to move counter-cyclic.
I recently was asked if a 'stress test' could be designed for a composite portfolio of income ETFs of various maturities, sources of income and quality rating. I said, "Probably not." Stress tests involve approximating what the default potential might be for a book of debt instruments. I don't think we could even guess at that potential except to look at the effective yield of the ETF and surmise its risk. But would that be risk of default or just of principal stability? Further, the portfolios represented by income ETFs are variable in structure based upon current market trends. So, at best it would be a moving target.
So, if a statistically significant number of stock market corrections involve a "flight to quality" reaction and a rise in the NAV of income funds, wouldn't it be a good idea to have the v-Wave nudging our portfolios toward "income" during times of low stock market reward potential (high v-Wave number)?
Further, after mild to severe market corrections we should see the stock market reward potential improve. That would move our v-Wave lower, suggesting we become more heavily involved on the "stocks" side and less dependent upon the "fixed income" side.
My interest here is in long term consistent total return rather than "best" annual return. We might accomplish better annual return, too, but 12 months is too short a time frame for this to work. Income and Stock Market Cycles are too long for a 12 month analysis.
