The webinar was recorded March 15, 2022.
You can
find the slides here.
Transcription:
Chris Preston [00:00:05] Hello and welcome to today’s Cabot Wealth webinar three winning ETFs to instantly diversify your portfolio. I’m your host, Chris Preston, Vice President of Content here at Cabot Wealth Network. With me today is Kate Salter, Chief Analyst of our brand new Cabot ETFs Strategist Advisory. Today, Kate’s here to explain why it’s important to have ETFs in your portfolio and to elaborate on the different kinds of ETFs that makes sense, especially right now. Kate will explain how ETFs are a way to efficiently diversify your portfolio without much downside risk. And to make it crash proof, something that’s been quite relevant, relevant of late. And finally, Kate will recommend three ETFs that you should buy today. This is an interactive webinar, which means we’ll be fielding your questions after Kate’s presentation concludes. So if you have a question, feel free to ask it at any time, and we’ll try to get as many of them as time allows once Kate wraps up. Just keep in mind that we cannot offer advice in regards to your own personal investing situation or portfolio. First, let me introduce Kate. Kate is a serious 65 licensed asset manager with more than two decades of experience in various areas of financial services as an investment advisor and financial planner. Kate personally manages client portfolios with a focus on successful retirement, including asset allocation, income generation and tax strategies. Kate also serves as a Capital Markets Contributor at Forbes.com, as an expert columnist for the Investment Advisory Channel at U.S. News and World Report. She served as trading instructor and market commentator for Investor’s Business Daily and launched the Small Cap Round Up Radio Show and stock newsletter for Tiger Financial News Network. Kate, also hosts of the Daily Guru podcast for Money Show, while also serving as a money show market comment columnist and video host. And now she also runs our Cabot ETFs Strategies Advisory, which launched in late January. Bottom line, Kate knows quite a bit about not only ETFs, but portfolio management and asset allocation, so I’ll let her tell you all about those things. Kate, take it away.
Kate Stalter [00:02:12] All right, thanks Chris. Thanks everybody for being here. Great to join you today. Now, it’s probably not the big news flash to everybody that we’re in a very challenging investment environment, and that even started before COVID, before the current situation with Russia and Ukraine. What we’ve been seeing for a while now, interest rates near historic lows, taxes likely to increase. And then, of course, the volatility that we’re seeing in the market now that has kicked up a lot recently and there are some ways to address that, and we’ll talk about that today. So, you know, in the past when people were saving for retirement, you maybe had a corporate pension or at least maybe if you’re watching, perhaps your parents had a corporate pension because that’s something that really has gone away very quickly. You still see some government pension. So if some of you either work for a government agency or perhaps retired from a government agency, you may have a government pension, but corporate pensions are gone. So it really means the onus of retirement savings is on all of us as individuals. And of course, you know about the 401k introduced in nineteen seventy eight was never really intended to replace the corporate pension, but that is in fact what happened. And then again, perhaps if you work for a government, a nonprofit, you might have a similar plan to the 401K, maybe a 457 403 b something of that nature. But the point remains you’re on your own. The company you work for is not putting away money for you and even in government agencies, and I know this because I’ve had a lot of clients who have worked for the government. Even then, you still have to sign up and do the saving of the money yourself in your retirement account. So it’s really on us. We really have to be very proactive and understand what it is we need to retire, how to maintain enough income to sustain your lifestyle. I think there’s a there’s a myth that kind of goes around, that your expenses will decline in retirement, and I’ve got to tell you, this is a very sad reason why that actually happens. And it’s not because people are spending less. I mean, think about it, right? You might want to travel, spend time with the family, maybe enjoy some things that you did not have time to do when you were working. The reason that people’s expenses go down when they retire, sadly, they don’t have the money. That is absolutely true. So I don’t want to see this happening to you. And that’s why we launched ETF strategist to help you with this. And so the last bullet point there, we all know this, right? Inflation is kicking up. I mean, I was at the gas pump yesterday. I could see it. It’s not even as bad here where I am as in places like California, where it’s really getting bad. You can see that’s the gas pump, but that’s just one example. So we are seeing more inflation right now. We have to accommodate for that. So right now, the value of the IRA accounts as of a few months ago, thirteen point two trillion and as you probably know, you have a 401k, you roll it over into an IRA, maybe with your financial advisor, maybe yourself, if you have not done that and you’ve left the job or retired. Please do do not keep it in your company’s 401k. That’s that. That’s a piece of free advice right there. You know, we are seeing low interest rates. As I mentioned inflation now that last bullet point. You know, we’ve heard, unfortunately very sadly, so much about the COVID deaths in the last couple of years. But one thing does remain true if you are healthy, well-educated, you do tend to live longer than your parents’ generation. So I don’t want anybody to think that just because of the unfortunate events with COVID, we’re still you should still expect longevity. And by that, I mean, I’ll just use this as an example. Say you retire at sixty seven, which is the retirement age for people born in 1960 or later in the Social Security age right now. And you should reasonably expect to live to ninety five. And if you are married or the partner, you should expect that the two of you should live to ninety five. So that’s a lot of asset management you have to do on your own or perhaps if you have an adviser. But it means be very, very deliberate, very intentional about what you’re doing in your retirement account. OK, so let’s talk about the ETFs jump into that mutual funds the traditional way that people have saved for retirement. Frequently, those expense ratios are high. There are some lower ones more index funds companies like Dimensional Fund Advisors. There are some lower ones, but typically mutual fund expense ratios have been high because these are actively managed instruments. You know, you’ve got your financial advisor. If some of you work with an advisor, you know that they can charge one percent to two percent a year. And the robo advisors, some of you are probably familiar with those Wealthfront Betterment, certainly Schwab Fidelity. They all they all have their own robo right now, Vanguard, and they offer little to no personalized service. So that’s also an area where, again, you still have to be very deliberate. I’m actually I actually like the idea of working with an advisor or keeping your money with a robo advisor. But again, just be careful because there are things they can do with things they can’t do. A lot of the responsibility still remains on you to be the one who’s doing the saving and to pay some attention to what’s going on. That’s just just to understand why you own the certain funds you do and what they’re designed to accomplish, and that’s what we’re going to talk about today. OK, so here is a look at interest rates. I actually just pulled this slide this morning, and you do see they’re going up a little bit. This was even though it says 20 20 over there. That is as of today what we’re seeing over here. So they’re going up a little bit. But let’s just talk about what a rising rate environment could mean for you as an investor. It does increase, as we know, borrowing costs for consumers and for businesses. Now, both of those can have the effect of slowing the economy, right, which could then in turn, affect the stock market. It also, though, has an effect on your investment portfolio because if interest rates what we’re seeing right now in this interest rate environment, your fixed income investments being so low they’re not generating the return that most people need to sustain that income out through age 95. Like I was just talking about. So that’s where that comes into it, right to generate the income you need to sustain yourself for like 30 years of retirement, potentially or even more so if you’re paying a financial adviser to manage your portfolio that includes bonds, you are likely paying more for that advisor to hold those funds than they are generating right now. So just be aware of that. You know, the traditional role of bonds in an allocated portfolio is to dampen the volatility of stocks. So you’re never going to get that really eye-popping return with bonds, and you probably know that. And that’s not the reason you traditionally have held them, but you also don’t want those bonds to drag down overall performance. So there’s a few things to be really cognizant of right now in this current environment. OK. Switching gears here a little bit. One of the things that I have always felt very strongly about as an asset manager and now with Cabot capital preservation is actually as important or perhaps more important than the idea of sort of swinging for the fences and getting the very best return you can. And I understand it’s a lot more fun to kind of pick the right stock and understand how much you can potentially get from that. But if you have a portfolio that is not designed properly for what you need, you definitely risk some very big losses. That would be difficult to make back once you lose those, and that becomes even more significant when you are in retirement and you need to make withdrawals from a portfolio that may be down. OK, so right now we’ve gone through some market volatility, some market downturn, not as bad as it could have, and not nearly as bad as like the person that retired say in 2008 and needed to start making withdrawals. Because what happened if you were retired in 2008, you were making withdrawals right there when all your equities were at their lows. And what did you do? You locked in losses and the chances of getting that back decreased even more because you had less capital to work with to to make the money back. So it does become sort of a vicious circle. And again, is just one more thing to be very, very cautious about with your portfolio, and I’ll come to this in a minute. Why some of this allocation is so important. In fact, I think it’s my next slide here. Yes, it is. So you’re looking here at what happened in twenty twenty one? And yes, the S&P 500 did turn out to do quite well. It doesn’t always has done very well in the last 10, 12 years or so. In most years, we’ve been very, very fortunate and a little spoiled, in fact. But you do see other asset classes here that also contributed to a return. Now this is not what I’m showing you here on this slide. This is sort of just a a selection, an example of different global and an asset class indexes. This is not a recommended portfolio. I don’t want anybody grabbing a screenshot of this and thinking this is the portfolio that I’m suggesting. It’s not. This is just for illustration purposes, just to show you how different asset classes performed. So this was interesting because you had the S&P, you also had commodities doing almost as well. And what was very interesting about that is after the 2008 downturn, a lot of people went into commodities thinking, Well, that’s going to offset if stocks perform badly. And what happened was commodities did not do well for many years. While stocks did so. We were in a situation in twenty twenty one for a host of reasons when both of those asset classes did very well. You had the Nasdaq, which frankly is kind of similar to the S&P 500 these days. IFA, that’s a European international stocks. Yes, they lagged, but you had a situation, and this is why I’m very much in favor of broad diversification. Yes, you had that eleven point three percent returns and nothing to sneeze at. That’s not bad, but you never know when one region is going to do better than another. You had a situation in the decade between 2000 and 2009 where international stocks actually outperformed U.S. large cap. Could it happen again? Sure. No reason why it couldn’t. You have some alternatives there, reads other alternatives muni bonds. And then you see here that the the bond market did not do so well. Emerging markets did not do so well. I thought that was interesting about gold. One of the few commodities to post a loss. The point is, you don’t know when any given asset class region sector is going to be a top performer. So it really is important even if you don’t have exposure to all of them at one time to be able to pivot. And we do have a couple, we have a few different portfolios within ETF strategist. One of them, we’re calling undiscovered, smaller, lesser known ETFs. That kind of gives you a little more tactical way, and we send out buy and sell signals on those. That gives you a little more of a tactical way to capture returns from some of these indexes, some of these ETFs that are doing well at the moment. And then we also have a more strategic. Allocation that we put into aggressive, moderate conservative allocations, just depending on your risk tolerance, time horizon and your own financial goals. OK, so I stayed here a minute because this is really important, kind of aligned with what we have here. You need an investment plan. And. I see what happens a lot. I think we’ve all done this right. When you kind of have a 401k from a job and maybe it just kind of sits there, you don’t really do anything with it, maybe you have a spouse who has a 401k and they really haven’t done much with it. That’s not an appropriate allocation. And we all know too, how to how do many people choose their investment in a 401k? Well, they look at what performed well in the previous year, and so that means that everybody now is going to be loading up on the S&P 500 or large cap U.S. stocks. And that’s worked well in recent years doesn’t mean it’s going to continue working well indefinitely. You also need to understand your real risk tolerance. This is kind of a little bit of a pet peeve of mine. I think Chris may have heard me say this before, because just I say this in a lot of the different webinars et Cabot. But there is nothing that is sort of a badge of honor about a high risk tolerance. There’s just not. It really means your risk tolerance depends on what income you need to generate and for what period of time. And you also want your investment plan to understand when you need to make withdrawals so you don’t buy high and sell low. OK. You know, when you have the long term portfolio, it’s a different thing than trades. And I’m not I don’t object to trades. That’s part of what we’re doing in the tactical, undiscovered portfolio. But in the strategic allocations, you want to avoid checking it daily because you don’t want to be going in a rebalancing and making those trades on a daily basis. You want to diversify, as I just pointed out, and rebalance at regular intervals. And what I mean by that is, for example, say your allocation shows that you should have. I’m just making this up, OK? 18 percent large cap U.S.. And then we see what happens at the S&P 500 continues rallying like it has or the Nasdaq continues rallying like it has. And what you would end up with is, say, twenty three, twenty four percent U.S. large cap. So meanwhile, something else is a smaller percentage. You just want to go in and make those adjustments to get everything back in line because that is what the plan dictates that you need to have. So. So that’s what that is and that is some of what what we do in in these portfolios. OK. I’ve kind of addressed this your time horizon income financial goals. Remember, when it comes to your income needs, don’t expect that you’re going to spend less, particularly in the early years of retirement when you’re healthy enough and there’s things that you want to be doing. And also, like I just pointed out, major liquid asset classes to stay diversified. I don’t object to theme ETFs at all. If that’s going to be writing about that for Cabot in the next day or so, we’ll post an article about that. But really, the building blocks of your portfolio should be those major asset classes that we looked at a minute ago. You want the major sectors, you want international, you want different market cap. We’re going to look at that here in just a minute and also be aware of duplication. That’s something I’ve seen a lot as well, is that people just over the years, just kind of what you’ve accumulated, you might have say, four different large U.S. funds. Or you might have like a U.S. tech fund that has duplication. I mean, right, if you got Apple, Microsoft, Amazon, Alphabet, all kind of the usual suspects in there, you might be duplicating what you already have in that S&P fund. So just just something, just something to think about there and to incorporate all of that into your investment plan. OK. Related topic. What do you own and why? Why is each ETFs in your portfolio? Each one should have a job and remember the this slide a few slides ago about the different asset classes, about alternatives, about commodities, about international stocks, different market cap didn’t really address that too much in that slide, but I will in a minute. The bond market, when appropriate, understand what each thing is and what it’s doing there. You know, I’ll give you an example about the bond market. I’ve seen people a lot of times say, I don’t want junk bonds. I can’t stay on junk bonds and they are. They can be very risky. They can have a role in your portfolio. They absolutely can. But they’re also very risky. So people come in and I see when I was an asset manager, people would come in with their previous portfolios that they bought prior to the time they met me. And right there they would have. I saw a woman come in. One time she had not one but two high yield bond funds, and she had said she didn’t want junk. She didn’t realize that is exactly what they were. And those have the characteristics of stocks. So they were kind of just adding risk rather than dampening volatility. So that’s my point is really kind of do an inventory of what ETFs what funds you have in your portfolio. Single stocks, if you have them and determine why everything is there and sometimes you might have a situation you’re just like, I just want that. I just like it. That’s fine. Nobody’s I wouldn’t. I wouldn’t necessarily tell you, you have to sell it, but just understand why it’s there and how it fits in. OK. Kind of, like I was saying with the with the different indexes I showed you a few minutes ago. Invest beyond the S&P 500 now we’re all guilty of it. Those of you who are watching, if you’re in the United States, especially, you know, we’re all very guilty of we based the market, our assessment of the market of what the S&P 500 is doing. And right here, I’m showing you the IVV. The iShares Core S&P ETF. Now this is one that we do track in some of the portfolios and happy to share that because it’s such a it’s such a basic, almost generic ETF, it is kind of one of the building blocks. We have a situation in all of the developed markets, really, including the US, Canada, Australia, Germany, Japan. And I mean, I think in every single developed market there’s a vanguard. Did research into this. Investors tend to tilt their portfolios way too much in favor of stocks in their home country, it’s called home country bias. Now here in the U.S., we’re actually very fortunate. We’re kind of luckier when we do that because our economy and our investment universe is so well diversified. In Canada, for example, we’re talking about Canada a little bit. The three of us before before the webinar began. Canadian investors, the average Canadian investor, holds about 70 percent of their portfolio in Canadian stocks. And the reason for that is I learned this the Canadian government actually incentivizes them to do that somehow. But I guess there’s a tax break of some sort, but you’re it’s not so much of an advantage because Canadian stocks tend to tilt very heavily towards oil and gas towards minerals. So there’s some tech, but you’re more heavily invested in one or two particular sectors. Whereas U.S. investors, where we have a home country bias that’s not as big of a problem because we have a lot more industry diversification in this market. But anyway, it is important you get outside just the S&P. It is not the broad market benchmark. I know everybody calls it the benchmark index. Not true. It benchmarks one thing large cap U.S. stocks. It’s pretty good at that, but that’s all it does. So you restrict yourself to the S&P 500 or just U.S. stocks all the time. You are limiting your investment potential, particularly in any kind of market cycle where other assets besides large cap U.S. weighting. OK, a small, better well over time. There’s plenty of research to show this small caps do outperform large caps, and you kind of can see that on a cyclical basis kind of throughout the year. Maybe if you’re watching the market headlines, you see something that says small caps are rallying, small caps are outperforming. It could kind of come and go throughout the course of the year as well. But over time, that does tend to happen. Another some reasons for that they’re smaller. They have more room to grow. They’re often newer companies, and they often have managers who are very well incentivized to grow the company fast to pursue some more aggressive projects. So that’s why you often see small caps or some of the best performers, just depending on the market cycle. So we’re looking at three ETFs today. This is the first one that I want to show you. And when we’re talking about recommending these, I don’t want anybody to think I’m necessarily telling you these are buy and hold. I don’t. You got to really be careful when you’re looking at an individual fund like this and how it might fit in. Now you can see there, this is the IJA are. It’s the iShares S&P SmallCap ETF. And you can see here we’re kind of off some highs from a few months ago. And does that mean it’s potentially a good time to add to your portfolio? Yes, it could be. I don’t I don’t necessarily believe you should try and wait to time the market bottom because who the heck knows when that’s going to happen or the top either, for that matter? But I do want you just to keep in mind that small cap stocks are often overlooked and it’s something that you would be well advised to consider as an addition to your portfolio. So this is one also the small cap international stocks. I don’t have a I don’t have a slide for one of those here, but I’ll just kind of plant that idea in your head. What’s interesting about small cap international stocks is that they’re all the dividend payers, which is different than small cap U.S. stocks, because the small cap stocks in the U.S. tend to put more of their profits back into the company itself, rather than paying them out as dividends. So you’re looking at two different things, but this is one the the S&P 600 small cap ETF domestic small caps. OK, let’s talk about value stocks. This is another category that tends to outperform growth over time, and people just find that startling because you would think intuitively by the name growth stock. You would think that those would consistently be the leader and I know they have been in recent years. I do understand that the growth stocks have been outperformers. They’ve done spectacularly well. But over time, you do want to include the value stocks in your portfolio. Now these are the ones that are beaten down, have some room to grow, have little more overhead overhead, room to run there. An example I often use this goes back a few years ago, if you recall. Now this goes back maybe seven or eight years, but it’s a good one when Target had some problems over. I think their their credit card system got hacked or something. I mean, they fixed it many, many years ago. But at that point, Target became it was trading at lower valuations. It had been relative to the expectations for its earnings. So Target was an example of a stock that you could buy at a cheap valuation at that point. And there’s plenty of examples like that. And the thing was value stocks is it does give you an opportunity to buy something that’s cheaper. So yes, you can access this through a fund. And this is the iShares U.S. Value Factor ETF. And you do have. As as the name suggests, you are looking at some beaten down stocks now. This one is beaten down itself right now and kind of similar to what we were just talking about with the small caps and frankly, just about any equity asset class at this time on this day that we’re speaking. But all of these are are at pretty good valuations right now. So you want you want to consider this. And I think one of the reasons that sometimes people ignore the value stocks is because they’re not as glamorous as some of the growth stocks are. And I do understand that. But a good way to access these without having to get in there and be picking and choosing is through a fund like this one vehicle, you see? OK. I’m switching gears here for my third ETFs, and this is more of a tactical consideration what we have right here. I’m going to talk to you about an inverse ETFs now what those do is they return usually 100 percent. You could have leveraged inverse ETFs and they use hedging vehicles and derivatives and kind of some different instruments in the portfolio itself. But basically, what the inverse ETFs do is they return the opposite of what the underlying index is doing so. Well, I’ll show you one in a minute, the S8, which is short S&P 500. You only want to use these not as a buy and hold. You don’t just buy them, put them in your portfolio and then hold them for a decade. That is not what these are designed to do at all. You only use these when the asset class you’re tracking is trading lower. So that’s why I’m using this very simple example of the S&P 500, the inverse ETFs. They do track a number of broad market indexes. This is the S-H and you do see that we’ve we’ve had had some pretty good success with this lately now when the market’s going up. But I’m just kind of showing you this while the market was going up in 2021. This was not a place to be unless you were going to make some really short term day trade or swing trade. And if you want to do that, that’s fine. These are the ones you have to monitor. Like I said, you can’t. These are not buy and hold. So you see you were able to capture some returns back in here in the fall. And remember, this is the short S&P 500. So is the S&P 500 was rising again. This did not do well, and you’ve been able to get some gains on this one recently as well, which looks pretty good. So I like the potential for incorporating an ETF like this one. You just have to be super careful and you really have to monitor this every day if you’re going to do this. So you see what I kind of did today was showed you a little bit of the traditional asset allocation, more of a long term perspective. But then also, if you want to be using some ETFs in a tactical nature for more of a short term trade, you can also do that. But don’t confuse the two because they’re very different approaches, very different approaches. And I would actually prefer if you sort of kept your longer term investments separate and and something like a trade like this tactical look at it quite differently. You can hold it all in the same account. That’s fine, but just understand you have to view them very differently. So I think that’s what I have. I’m going to hand this back over to Chris for a minute here.
Chris Preston [00:32:09] Yup. Yeah. Thank you, Kate. Thanks for that. I’m going to give Kate a minute to catch her breath before she starts answering some of your questions. In the meantime, just a bit of housekeeping. If you like where you’ve heard from Kate so far today and are interested in signing up for her Cabot ETFs strategist newsletter, you can visit the website on your screen for a special half price offer reserved exclusively for today’s listeners. That’s Cabot Wealth dot com slash webinar special, and what you get in return as a subscriber are monthly issues to her advisory with the latest recommendations buy and sell alerts, weekly audio updates, 24-7 online access and two special reports. So if you want to subscribe to Cabot ETFs Strategies to hear more from Kate, please visit that web that site on your screen. Cabot Wealth dot com slash webinar special again for a half price offer, and you’ll also receive an email with the offer in your inbox shortly. OK, let’s get on to your questions. I See, we have a few already. One from David who’s been waiting patiently. David asks, Is cash better than bonds to reduce volatility in a portfolio?
Kate Stalter [00:33:24] Yeah, it depends what market cycle you’re in at this moment right now. The answer, I would think yes, yeah, cash is good right now, but again, depending on what starts to happen with the bond market, you want to be prepared to deploy some of that cash at the right time. I mean this this situation with bonds underperforming relative to where they should be, it’s not going to last forever. So you really just want to be ready to redeploy that cash whenever that situation does change.
Chris Preston [00:33:56] OK. We have a couple of questions. Just people just wanting clarification with the three ETFs three ETFs are, might have missed one of them. S.H. was obviously the last one. What are the other two?
Kate Stalter [00:34:10] Yeah, so IJR is the small cap ETF. S&P600 small cap and VLUE was the value factor ETF to get access to value stocks.
Chris Preston [00:34:28] All right. Thank you. OK. How do the IVV and SPY compare?
Kate Stalter [00:34:38] Yeah, I don’t have the expense ratios in front of me, they’re essentially they’re the same thing. I think maybe one has an expense ratio that’s a little lower than the other. They’re both very inexpensive. I consider them pretty interchangeable. So either one is fine for access to the S&P 500.
Chris Preston [00:34:59] OK, let’s see. Question from Ray. If we are going into a recession, what ETFs do you would you use to preserve your portfolio?
Kate Stalter [00:35:12] Yeah, so that’s that’s a really good question. And that was actually along the lines of why I showed you the S.H. today is as a way of sort of counteracting what you might be seeing in the S&P 500. So that’s one answer. The other answer is this is this is a little less exciting, but one of the ideas of a fully allocated portfolio using a broad number of asset classes from international funds sector funds is you want to be able to get the gains from whichever fund or funds or asset classes are outperforming. And something always is. There’s always something outperforming. And I mentioned it a few minutes ago, but one of my favorite statistics does go back to that decade between 2000 and 2009, and it seems like a long time ago now. But the data from that are still very relevant in terms of an investment strategy is, you know, you had the S&P 500, so you only owned the S&P 500 during that decade. Well, you would have lost money, I think I think it was down nine percent or something during that decade, if I’m remembering this correctly. But you had small caps, U.S. small caps were up, emerging market stocks were up. European stocks were up. The bond market was up. So it’s almost as if there’s not really a trick to doing it. It’s just maintaining the allocation. And and that can that can actually pay off over the long haul, as we’ve seen.
Chris Preston [00:37:00] OK. Patricia asks, how many ETFs are in your model portfolio?
Kate Stalter [00:37:07] Yes, so in in the undiscovered, we’re keeping that one pretty small like for this, for right now. We may add up to six, but it will keep that one small in the aggressive, moderate and conservative. They’re about 11 ETFs and we slice and dice that pretty thin. Just to make sure that there is the exposure and those are rebalanced, it is not a buy and hold and we do send out the rebalancing alerts. In fact, I’m going to have one this week. I think we do send out the rebalancing alerts and you know, you can you can do this with a smaller number of funds. But again, the trick is you always just have to keep your allocations in balance if you’re going to do it that way. And the big problem, no matter how many funds you hold, the biggest problem people have is they set and forget. And that’s kind of where we come in with this advisory is will we’ll tell you when to make these changes so it doesn’t become this thing that just sits there for five years and you’re like, Oh my gosh, I’ve I’ve missed out on some of the gains I could have had.
Chris Preston [00:38:19] OK. Question from Umesh, why are there no commodity ETFs on your list?
Kate Stalter [00:38:29] Today? Well, because we were limited to three and I want to be careful about recommending commodities, are we the title of this was three and I picked the three that I thought would really be the most relevant asset classes that people need to to really make sure they include as kind of a especially the IJR and the value those two. I want to make sure that people understand you need small caps. You need some value. Yes, commodities are a very important part of an allocation and we do use those, but you have to be a little bit more judicious with those. And again, don’t make the assumption that they’re necessarily going to be the sort of non correlated to stocks or highly correlated. It hasn’t always worked out the way investors have thought, particularly after 2008. So that’s that’s really the reason I wanted to just go over some basics today and not get into the commodities today.
Chris Preston [00:39:34] OK. There’s a clarification, a question about the about your advisory from Lou. Kate, can I ask where your weekly or monthly schedule is for the ETFs strategy? For example, Mike’s top 10 is Monday and Friday.
Kate Stalter [00:39:49] Yeah, so this one is the actual advisory is published once a month, but there’s lots of updates. I just I updated every Tuesday. One comes out and trade alerts as needed. I think we had three of them in the past three weeks or something. So there’s there’s quite a bit that we send out there and it kind of goes along with the idea of what I said about needing to pay attention to what’s going on with your investments. I’m very I very leery of these set and forget mentality that comes in with people’s ETFs portfolios. And part of what I want to do is just make sure that that nobody gets into that, that you do have all the alerts you need to take advantage of what’s happening in any particular market where economic cycle.
Chris Preston [00:40:41] OK. Question from Joseph. What is the best percentage allocation between international and U.S. domestic stocks, or ETFs?
Kate Stalter [00:40:53] Yeah, so great question. This is kind of what I was talking about with the home country bias in that we kind of tend to tilt more towards our own home country stocks. And I’m fine with that in the U.S. for the reasons I detailed that because we have so much diversification just inherent in the U.S. market. And frankly, these are the stocks that have done well in the past few years, right? It’s been, though it has been the large cap US stocks that have done the best in recent years. So I don’t want to make a recommendation because now we’re getting into individual advice because everybody’s everybody’s allocation is going to be different. But if you have a tilt like a double digit low, low to medium double digit allocation into U.S. stocks, then you can go you can have a lesser allocation into European stocks. Now, at some point in time, if the international not just European but like developed Asia, Australia, other developed markets. If if those do tend to outperform, outperform U.S. stocks and it could happen now, they’re more highly correlated now than they were back in that decade between 2000 and 2009. I do understand that. But if we do have some point in the market where those tend to be the outperformers, then yes, you may want to ratchet that holding up a little bit. But generally speaking, if you are a U.S. investor, you you do want your large cap U.S. holding to be higher than your international holding.
Chris Preston [00:42:36] OK, we’ll do one or two more questions. Here’s the question how do you use stops on your trades?
Kate Stalter [00:42:44] Oh, OK. The answer is no. In the allocated portfolios, those are really kind of corridors and you don’t want to. You do not want to be going into your asset allocation and making trades just because of what what might be happening in any given day. You really want to give those a little more room to run and not buy and hold. I think I think I’ve made that clear. But you don’t want to rebalance every day just because something gets out. You’ll be rebalancing literally every day. And that’s not going to help you. On the more tactical portfolios. No, there’s a little bit I do use technicals and I do look at what is happening in regard to which, which indexes, which asset classes, which sectors are performing well in any given market cycle. But it’s not necessarily the case that we’re going to be using stocks on those. Those are more. I will send you out an alert when there is some need to make a trade.
Chris Preston [00:43:55] All right. The last question to David David asks, how do you view Chinese stocks?
Kate Stalter [00:44:04] You should own them. That’s, you know, those are those are included in emerging market funds. And you know, I know China is kind of a people tend to look at that market kind of as different from the rest of emerging markets. But you know, here’s something that’s going to surprise you, David. Chinese stocks constitute something like. Four or five percent of global market cap people think it’s much higher. It’s not Chinese stocks or a very small percentage percentage of global market cap. So yes, you want them included in your emerging market allocation.
Chris Preston [00:44:47] OK. One more from Joseph, do you use the business cycle and favoring specific sectors?
Kate Stalter [00:44:56] Yes, but yes and no, I mean, I don’t I don’t kind of tend to go in, go in there and analyze the business cycle, it’s reflected in what you see in the earnings, it’s reflected in what you see in the technicals. So it’s kind of there already. It’s kind of baked in, really. And that would be incorporated in any of your decisions to rebalance or make a trade.
Chris Preston [00:45:20] All right, great, thanks for all the good questions, everyone. Thank you. Any last words for our wrap things up?
Kate Stalter [00:45:31] Yeah, if you if anybody out there does have further questions, I know sometimes you walk away from something like this and you when you think of something, or maybe if you’re evaluating how you’d like to allocate your ETF portfolio, you’re thinking about the Strategist ETF Strategist newsletter. Feel free to send over a question. I do get a lot of questions from the readers, from the Cabot subscribers, and I’m very happy to answer anything that you send over.
Chris Preston [00:45:58] Great. OK, well, let me I’ll wrap things up, OK, if you don’t mind advancing to the next slide. Thanks everyone for joining us today. We’ll be back next month with webinar from Tom Hutchinson, who’s Chief Analyst of our Cabot Dividend Investor and Cabot incoming advisor newsletters. Tom will be talking about his three dividend stocks to fortify your portfolio against market turmoil, and that’ll be at 2:00 p.m. Eastern on Thursday, April 21st. So I’ll come back for that. That does it for us, for Kate Stelter and the entire Cabot Wealth Network team. I’m Chris Preston and we’ll see you next time.