Yesterday’s big market move aside, many feel that stocks and exchange traded funds (ETFs) could still be in for a wild ride in the months to come. That’s why you might be thinking about what to put in that “doomsday” portfolio.
It’s not pretty out there.
- Accounting only for the unfunded liabilities of Social Security, Medicare and Medicaid, the government is facing $108 trillion of debt. That is $815,000 per U.S. taxpayer, reports Alexander Green of Investment U.
- Remember also that the federal debt now tops $13 trillion.
If we do face a protracted recession, what can investors do to merely keep up with inflation? Green suggests the 80/20 allocation strategy- 80% in bonds and 20% in stocks. He says this is actually safer than putting 100% in bonds.
Specifically, Green’s strategy calls for you to:
- Put 40% of your liquid portfolio in a laddered portfolio of AAA-insured, tax-free bonds.
- Put 40% in a laddered portfolio of inflation-adjusted Treasuries, also AAA-rated.
- Put the remaining 20% in defensive, blue chip, dividend-paying ETFs such as those holding food companies, health care companies, utilities, defense contractors and gold mining companies. [Dividend ETFs Look for a Boost.]
Green mentions that, personally, he wouldn’t follow the 80/20 strategy- he’s still optimistic about our future. [Stocks or Bonds?]
But for the naysayers who can only see adversity ahead, the 80/20 rule may be one to consider, especially because ETFs make it very easy to do. But there are other things to consider:
- It’s scary in the markets right now and there’s a lot of uncertainty. That is no excuse, however, to lose your cool. You can’t control the markets. You can only control yourself and your feelings about it. One way to do that is to have a strategy.
- That brings us to this point: we follow a trend following strategy – use the 200-day moving average to find areas with potential long-term uptrends while avoiding those with no firm trend in place. It also helps you make decisions based on market signals, leaving your emotions out of it. [How to Follow Trends.]
For more stories on ETF investing, visit out ETF 101 category.
Sumin Kim contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.