Rotation of 4 ETFs

We can beat the market by rotating one ETF that represents the market such as SPY and cash (or short-term bond ETF) via market timing.

During market uptrend, rotate the following four ETFs could be more profitable. Be warned that short-term capital gain in taxable accounts is not treated as favorably as the long-term capital gain; check current tax laws.

The allocation percentages depend on individual risk tolerance. You can use indexed mutual funds. Compare their expenses and restrictions. Some mutual funds charge you if you withdraw within a specific period.

Select the best performer of last month (from Seeking Alpha, cnnFn, or the ETF/mutual fund site). I prefer 45 days instead of one month as they are not too volatile. Add sector ETFs to the four ETFs such as XLY, XLP, XLE, XLF, XLU, IYW, XHB, IYM, OIL and XLU to expand your selection.

ETFs	Money Market	US	International	Bond
Fidelity		Spartan Total Market	Spartan Global Market	Spartan US Bond
Vanguard		Total Stock Market	Total International Market	Total Bond Market
My choice	Fidelity	SPY	Vanguard	Fidelity
Suggest %
During Market plunge	90%	0%	0%	10%
After plunge	10%	60%	10%	20%

Explanation

·         The above are suggestions only. If your broker offers similar ETFs, consider using them.

·         Check out any restrictions of the ETFs.

·         4 ETFs (one actually is a money market fund) are enough for most starters. They are diversified, low-cost and you do not need balancing except during market plunge (refer the chapter on Detecting Market Plunges).

·         The percentages are suggestion only. If you are less risk tolerance, allocate more on money market fund and/or bond ETF.

·         Have at least 10% allocated to the money market fund. When there is a mild market dip, move the money market fund to the US equity fund. Move it back to money market when there is a mild market upsurge. If you do not have time to check the market, allocate this 10% to the bond ETF.

·         When the market is risky, reduce stock equities (i.e. increase money market and bond allocations).

·         The symbols for Fidelity ETFs are FSTMX, FSGDX and FBIDX.

·         The symbols for Vanguard ETFs are VTSMX, VGTSX and VBMFX.

·         To boost performance, add GLD, the gold ETF.

·         Again, do not invest during market plunge as indicated by my market timing techniques.

If you are more advanced, use additional sector ETFs to rotate. Find out the current winners from many sources including CNNfn.com. Also buy long-term bond funds (such as 30-year Treasury) when the interest rate is 10% or more. I have covered the basics in sector rotation.

---------------This is from my new book Swing Trading  3rd Edition. Click here for more detail.