Reader Question: Re-Entering The Market

With the markets having slipped into bear territory, some readers are looking ahead towards the point when a new Buy signal is being generated. Reader Ron had the following question:

Thank you for your excellent blog and services.

I have read through all the Reader’s FAQs, and I am still a little confused about your buy strategy.

Assuming I have $100,000, and I would like to buy 50% international and 50% domestic. At the next domestic buy signal, you mention you will enter position with only 1/3 of your allocation. I assume you mean you will buy 50,000 * 1/3 = $16,500. So when exactly will you enter position for the other 2/3 allocation of domestic fund?

Or do you actually buy the entire 50% domestic when you see the next buy signal?

While this is not an exact science, here’s how I approach it. The first issue is that we don’t know yet whether the domestic or the international Trend Tracking Index (TTI) will signal a Buy first. So you need to stay flexible and not go by the fixed assumption that you want to invest 50% international and 50% domestic—you need to let the market trends tell you what to do.

Lets’ say the domestic TTI signals a Buy first. Using your above numbers, I would allocate 1/3 of portfolio value ($33k) to that area. If the market continues to rise and your positions gain some 5% in value, I would add another 1/3 to that market and so on until you’re fully invested.

If, however, after you have committed the first 1/3 to the domestic market, the international TTI signals a Buy, then I would allocate 1/3 ($33k) to that arena as well, which will result in our portfolio being invested 66%. You can now sit back and watch which positions gain in value and add to those until you are 100% invested.

Alternatively, if you are more aggressive, you could also divvy up the remaining 1/3 in various sector and country funds, which will get you to a fully invested position much sooner.

Again, it all depends on your risk tolerance and your objectives.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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