PIP-VEVE has been successful so far. Should we do more of it? And where would we find the money to do so? Here are my further thoughts….
Sell more bonds?
We reduced your bond holdings from 20% to 10% for PIP-VEVE.
The remaining bonds serve a useful (if not always obvious) purpose. They put the brakes on big drops in stock markets (we are due one) and become ammunition we can use to profit from the inevitable stock market rebound.
Having more in PIP-VEVE blunts that ability so I do not think we should reduce further.
Find some cash elsewhere?
Where you have cash not needed for income purposes or individual shares in an ex-employer that aren’t doing much, could these be put to better use? I think there is a case to be made.
Use something other than VEVE?
Could we add a more “exciting” investment to the stable?
In May I started looking into using the PIP-VEVE strategy onthe FTSE100, S&P500, Russell1000 and NASDAQ100.
VEVE = diversification
VEVE holds the shares of 2,000+ companies around the world.That gives us a huge amount of diversification across geographies, industries,governments and currencies. And that is important in stopping things gettingout of hand.
If we reduce one or more of those diversifications then wecan expect larger ups and downs. But if we reduce them too much, we run therisk of getting stuck in a cycle for a long time.
FTSE100 / S&P500 / Russell100?
When I looked at using the PIP strategy on the FTSE100 forthe last 12 months, there was not enough ebbing and flowing. This option waseasily dismissed.
I turned my attention to the S&P500 and Russell1000 coveringthe largest companies in the US. The results mirrored PIP-VEVE, which is not a surprise as US companies make up about 70% of VEVE. These two have also been dismissed.
NASDAQ100
Diversification is obviously lacking in the NASDAQ100 (there are only 100 companies all involved in tech), but the last year would have produced twice the return that PIP-VEVE did using the same rules.
So, after a drop at the end of July, I bought the NASDAQ100.
It then plunged lower, so I bought some more.
77 days later the second tranche is up 3% return and hasbeen sold. The balance is still someway off. In this first experiment I havefound myself stuck in the cycle for too long for my liking.
I am not dismissing the NASDAQ100 out of hand, but itstrikes me I need to counter reduced diversification with a change to therules.
That is what I am now working on, but I don’t expect thisoption to be appropriate for the majority of you.
Conclusion
There is a case for more PIP-VEVE, but we should proceedwith caution.
Please let me know if you would like to discuss this furthersooner than our next catch up.