This 2-ETF Portfolio Protects You From a Stock Market Storm and Teaches You the Most Important Investing Lesson Ever

What’s a better way?

Let’s define “better.” Since we do not know the future, and we need to decide now where to invest, and the strategy and process we’ll use to get what we want out of our saved assets, what defines “winning” is important for every investor to decide instead of simply “hoping for the best” at a time of extreme market conditions.

My personal recommendation stems from my own success using the simplest ETF portfolio I’ve ever built.

I’m on record as saying that a portfolio containing only the SPDR S&P 500 ETF Trust (SPY) and the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) can potentially solve that core investment allocation challenge for at least 80% of investors.

The key is that in addition to the two ETFs, you need a plan to allocate among them. Not one or the other, though there will be times when one is so attractive, you might not want much of the other. And while my method is simply to take the weekly ROAR Score of SPY, allocate that percentage of the portfolio to it, and invest the rest in BIL, that’s only one way to play this.

You could maintain a static allocation to the pair, and revisit it once a month. Or once a quarter, or once a year. Or when the market moves a lot, up or down. Or, you can swing trade between the two.

My point is that the concept of diversifying between stocks and cash is not new. But with the markets so highly correlated now, it makes sense to start super simple. As we know, you can make it as funky and exotic as you wish, once you move up the learning curve a bit.

That chart above really speaks to me, and hopefully to you too. It shows that simple 2-ETF, SPY-BIL allocation, addressed once a week by seeing my ROAR Score (free to track 24/7 at my site, see footnotes below), and determining if the allocation to SPY is still in line with what that automated chart reader (that’s what ROAR is) says at that point in time.

We track the performance from the start of the “modern era” of investing (2020), and while it won’t compete with a 100% SPY allocation (pink line), it actually moved in lock step with the Invesco S&P 500 Equal Weight ETF (RSP)  That’s the same S&P 500, but with the stocks equally weighted instead of by company size.

That speaks volumes to me as a tenured investor. Because if you check out the data above the chart, you see that the simple 2-ETF SPY-BIL portfolio earned 8.5% annualized over that time, but at no point lost more than 13% of its peak value. It kept me in the game, financially and emotionally. What was RSP’s maximum decline: nearly 40%! Similar return with one-third the risk. That’s taking market cycles seriously. Not to time the market, but to survive the down cycles with a lot more capital than your friends and neighbors.

Up cycles are great. But you can’t forget to plan for what happens when things go down.

Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob’s written research, check out ETFYourself.com.

On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com