EZV Algorithms: Happy New Year; Dedicated To A Prosperous 2021

Summary

• Happy New Year to EZV followers.  I wish you a very prosperous 2021.
• Here's a suggested resolution . . . Stop following fear-and-greed instincts; they are counterproductive. Use objective quantitative metrics instead.
• 2020 was great financially, even if it lacked in so many COVID ways. I'd like to help you excel in 2021 by showing how EZV performed since inception.
• With a good risk-off early warning system, the more trouble 2021 throws at us, the better investment returns will be.

Some might say good riddance to 2020.  With COVID and all its implications, who could be blamed. But 2020 was a fabulous year financially, and I don't say that just because the S&P was up 16%.  There is far more to the story, and the implications for 2021 could be a game changer if you're still guessing at market tops and bottoms.

EZV Algorithms has been live since October 2019. This is how members have done starting with $100,000 if they simply followed the buy-hold-sell signals trading with SPY, switching to IEF on documented sell signals. 

Source: Michael Gettings  Data Sources: Yahoo Finance; EZV Signals of record

But it was better than that.  Here is a graph of how those of us using 3X leveraged ETFs did over the same period starting with the same $100,000.

Source: Michael Gettings Data Sources: Yahoo Finance; EZV Signals of record

That is no mistake; a $100,000 starting investment would have grown to over $560,000 in 15 months, but that would only apply to very aggressive investors.

We have a full range of risk appetites within the EZV service.  Some are aggressive and some are retired, managing a nest egg for future living expenses.  If your instinctive reaction is that the leveraged ETFs are too risky, think a little more about you might use them.  The reality depends on how you structure and manage your portfolio.

So, being realistic, an aggressive investor could earn the outrageous returns that come with a fully leveraged portfolio, but few of us would even consider it.  What happens if you were to compare aggregate-portfolio contributions for a 60% SPY allocation versus a 20% allocation of 3X-leveraged ETFs (TQQQ/SPXL/TNA).

Here is a comparison of 3 approaches to portfolio composition and how they could contribute to consolidated-portfolio positions.  They show varying allocations as a percent of the total portfolio, the nature of the holdings, and whether managed to a buy-and-hold philosophy or using the EZV algorithm.

Source: Michael Gettings  Data Sources: Yahoo Finance; EZV Signals of record 

I suspect your first impression is that returns look impressive for both approaches that use the algorithm, but let's look at some details.  Notice in the top two areas that the 20% allocation of 3X ETFs outperforms a 60% allocation for SPY.  the difference amounts to 4.5% over the 15 months since October 2019.  

More importantly, consider the lack of volatility for the 20%-leveraged growth line.  A conservative 20% allocation dedicated to these 3X ETFs produced a 45.7% gain on the entire portfolio over 15 months, and it did so while  minimizing gut-wrenching ups and downs.  And if you attained that 46% gain with a 20% allocation, you could have devoted 80% to yield-oriented holdings. That would add to returns and also it would further dampen volatility if you chose inversely correlated holdings.

And here is a big deal.  Even assuming the algorithm failed completely, if you held 60% in unleveraged positions and the market dropped by half (like the COVID crater in Q1-2020), you would be starting with a 70% residual position to rebuild.   But if you lost the entirety of the 20% leveraged positions, you'd be rebuilding from an 80% residual baseline and that rebuilding would benefit from the accelerating rebound using the leveraged ETFs.   

Understand, the leverage is not a necessary component to use the EZV algorithm.  Some just run SPY or a basket of broad-based unleveraged ETFs.  For myself, I run about 30% of my portfolio in the leveraged ETFs as I've gradually increased the allocation over the last year or so. I increase the leveraged portion in small increments as I accumulate additional "house" money.  Of course, I've built a lot of confidence in the algorithm and that takes some time.

So happy new year!  You've made it through a generally crummy 2020, but better times are coming.  And there is no time like now to build a better financial future.