ETF Portfolio Rules

I started this thought process off a year ago and had some pretty nuanced rules that required more day to day management of the portfolio. Over time, I have simplified them and the portfolio can be managed on the weekends.

The first rule is what ETFs to include. I have picked 4: QQQ (Nasdaq 100), TQQQ (3x leveraged Nasdaq 100), SPY (S&P 500), and UPRO (3x leveraged S&P 500). My hope is that having an allocation to the broader market outside technology, it will allow me to maintain my commitment to the portfolio should the valuations of technology stocks face trouble.

The second rule is what is our base allocation. My baseline is to have 15% of the portfolio allocated to the SPY ETFs and 15% of the portfolio allocated to the 3x ETFs. Given those parameters, the base allocations are as follows:

  • QQQ – 72.25%
  • TQQQ – 12.75%
  • SPY – 12.75%
  • UPRO – 2.25%

Given a $100K portfolio, here is how the portfolio composition would look on October 31, 2021.

The third and final rule deals with rebalancing. We don’t want to do this too much, especially if we are in a taxable account, but we want to take advantage of large moves away from our baseline allocation. At a minimum, I want to reallocate at the end of each month if any one position is more than 5% from my desired allocation. I also want to consider a mid-month rebalance if any position reaches 7.5% from my desired allocation OR the QQQ daily RSI reaches 30. I have done some historical study surrounding QQQ and low RSIs and, as long as the VIX isn’t extremely elevated, a low RSI generally signals a bounce is coming and is a good time to rebalance.

I have tried to follow this portfolio but end up making rash decisions based on day to day machinations of the market. I am hoping these rules will keep me honest. I will be posting any updates I make to the portfolio on this blog and will be starting with the $100k portfolio posted above.

This is not financial advice, just me documenting my philosophy and trying to hold myself to the rules I set.

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