3-Way Asset Strategy (Stocks, Bonds & Gold) 1969 To Present
The concept here is simple, and often simple is best. The assets used in the three-way asset strategy are the S&P 500 Total Return Index for stocks, Barclays Capital Long-Term Treasury Total Return Index for bonds, and Gold Spot for gold.
Here is how it works:
- Stay fully invested in any of the three assets provided each asset’s three-month moving average is above its 10-month moving average.
- If, for example, gold is the only asset with its three-month price trend above its 10-month, then the model will be 100 percent long gold. If stocks and bonds are above, but not gold, then 50 percent is positioned in each. If all three are in a positive uptrend, then a third is allocated to each.
- It's that simple. The model’s returns are better and much less volatile than the S&P itself.
The red line in the following chart shows the performance from 1968 to present when holding the asset classes (S&P 500, long-term bonds and gold) when the three-month moving average is above its 10-month moving average.
It also shows how a three-way model can do well against the stock market as represented by the Standard and Poor's 500 Total Return Index. You’ll see that currently the model is allocated 50 percent S&P 500 Index and 50 percent long-term Treasury bonds. Gold has been in a downtrend for some time.
To implement the strategy, there are a number of ETFs that may be used. For equities, consider one of the following cap-weighted S&P 500 Index-based ETFs:
- SPDR S&P 500 ETF (SPY | A-98)
- iShares Core S&P 500 ETF (IVV | A-99)
- Vanguard S&P 500 ETF (VOO | A-98)
Or you might consider smart-beta S&P 500 Index-based ETFs if you believe they will outperform the traditional cap-weighted approach, such as:
- Guggenheim S&P 500 Equal Weight ETF (RSP | A-83)
- PowerShares FTSE RAFI US 1000 Portfolio (PRF | A-88)
- Innovator IBD 50 ETF (FFTY), an interesting new ETF that combines top fundamentals with relative price strength tracking the Investor Business Daily 50 Index
For gold, consider the gold ETFs:
And for long-term Treasury bond exposure, consider:
- Vanguard Long-Term Government Bond ETF (VGLT | B-99)
- SPDR Barclays Long-Term Treasury ETF (TLO | A-100)
- Pimco 25+ Year Zero Coupon U.S. Treasury Index ETF (ZROZ | C-46)
A strategy such as this might fit along with your other core portfolio holdings. The idea is that it manages downside risk quite well. For your single-ETF holdings, there are ways you may risk-protect those positions as well.
Consider the following: