Key Takeaways:
- The focus of an asset revesting portfolio is capital preservation and proactive growth.
- Multi-asset and single-asset revesting portfolios differ from traditional buy-and-hold portfolios used by firms like Fidelity and Schwab.
- When an investor can no longer afford to ride out the risks of a bear market with a 60/40 portfolio, an asset revesting portfolio can be a successful alternative.
What is in an Asset Revesting Portfolio?
Asset revesting is an investment strategy focused on proactive growth. It involves holding only rising assets in your portfolio. This is accomplished by consistently monitoring investing and selling signals, moving out of positions that are declining, and then revesting that capital into assets that are beginning to appreciate.
The Three Types of Portfolios
Most investors have a traditional diversified buy-and-hold portfolio. In this set-up, the investors buy assets they believe will grow in value over time and hold them until they rebalance or need to start liquidating for retirement. That means they have a stable set of assets in their portfolio that will rise and fall along with the volatility of the markets. The value of their portfolio, too, will rise and fall and it’s impossible to know whether the portfolio will be at a high or a low point when they need to start liquidating to fund their retirement.
The second type of portfolio investors have is a single-asset revesting portfolio. In this type of portfolio, investors have a hierarchy, or list, of appropriate, closely-related positions that they can move in and out of, based on their performance. This allows them to take advantage of the growth offered by short-term price fluctuations. Think of it like this: You like the precious metals sector, specifically gold, silver, and miners. Because these are closely-related and they tend to move together, they would be treated like a single asset. You simply enter and exit positions as you see new opportunities, and wait in cash when it’s not favorable, which can lead to a lot of down/dead time for a portfolio. This makes it great for a small portion of a portfolio only.
Finally, there is a multi-asset revesting portfolio, one of the most efficient investment portfolio strategies. In this setup, investors create a hierarchy of assets that includes a range of different investment types including ETFs, stocks, bonds, currencies, and more. With a multi-asset revesting portfolio, the investor moves capital into the best position within the asset hierarchy—a position that is rising in value—and moves capital out of assets that are trending downward.
Multi-asset revesting portfolios stand out from a single asset revesting strategy by always being in a position that is rising in value. Because it tracks multiple uncorrelated assets, there will always be one that can provide growth at any given time, thus it provides a consistent growth strategy for investors and is a whole portfolio solution.
For investors (or, revesters as we like to call them) who aren’t sure how to recognize the signals of assets rising in value, there are newsletter services providing signals for entry and exit as well as guidance on placing proactive stops. TheTechnicalTraders.com is a provider that includes this service as well as automated trade execution in your self-directed brokerage accounts, IRAs, and more.
The Alternative to 60/40
Traditional financial planning strategies often suggest the 60/40 portfolio, wherein you invest 60 percent of your holdings in stocks and 40 percent in bonds. While this may have been a suitable strategy in the past, as bond rates trend down and stocks become increasingly volatile, this approach no longer fulfills the growth and risk preservation needs of retirement savers and retirees. Not only does the 60/40 strategy require rebalancing portfolio appointments regularly, it doesn’t promote investing in only those assets that are trending upward.
The perfect example of the dangers of this approach occurred in 2022 when the price of stocks and bonds both fell, leading to one of the top three worst years for the 60/40 portfolio since the 1950’s. In the past we saw bonds hold value or rise when stock prices fell, but in this particular case, bond prices fell along with stocks, so both portions of the 60/40 (stocks/bonds) declined substantially.
What’s worse is that traditional financial advice has always been for the bond portion of your portfolio to equal your age. In other words, a 70-year-old investor would be encouraged to have a 70/30 portfolio (70% bonds/30% stocks). In 2022, we saw bonds fall more aggressively than stocks did, making this balance of a portfolio extremely high risk, and at the absolute worst possible time for a retiree.
Asset revesting portfolios, on the other hand, allows revesters to spend less time examining investment allocation and instead create a strategy centered around tactical asset movement. Here, capital is constantly being rotated and revested into rising assets and out of those trending downward.
Those who use an asset revesting portfolio method believe in only owning assets rising in value, and that cash is a powerful short-term position during certain market conditions, such as when all assets are falling. Their primary goals are capital preservation and managing losses because they understand that if losses are properly managed and capital is preserved, the profits will flow naturally.