How it Works
THE MODERN INCOME INVESTMENT PROCESS IN ACTION
How we construct, rotate, and manage portfolios.
Modern Income Investing is about balancing the potential for profits with the risk of major loss. We believe that ANY investment can go up in price at ANY time. What differs between them is how much risk of major loss is attached.
The portfolio model grid above is what we call our “depth chart.” It allows us to look, at a glance, at all 49 ETFs we consider for including in the Platinum Tier subscription of ModernIncomeInvestor.com. The portfolio always owns exactly 7 ETFs, and each of those ETFs is part of a “bucket,” such that if it is held in the model, it can only be held in that slot in the portfolio. For instance, there are 7 possible ETFs that can occupy Bucket #1, which is the largest position weighing in the model portfolio (30% of the portfolio). Above (without specific tickers shown) and in our Platinum Tier service (with specific tickers we consider), we present the ETFs in each bucket of the depth chart from those we judge to be the most aggressive positions to profit from bull market periods, to those which we judge to be the best positions to own during bear market periods.
The depth chart has been designed based on Rob Isbitts’ more than 30 years of investment experience, and his analysis of ETFs since the 1990s, when ETFs were first created. Each position in the model contributes something different to the pursuit of total return, risk-management and producing cash flow. There are 3 offensive positions, which will often be stock-oriented ETFs. There are 2 defensive positions, which are typically either inverse ETFs, bond ETFs or strategies with low correlation to the broad stock market. The final 2 slots are “wildcard” positions. These tend to be the most volatile ETF, either those that invest in high-risk/high return industries, or ETFs that represent aggressive ways to hedge the portfolio and/or profit from bear market cycles. As such, wildcard positions each make up only 5% of the model. Its all about balancing reward and risk!
In each bucket, the mission is to, at all times, hold what we believe to be the best of the 7 ETFs eligible to occupy that slot in the model portfolio. Those decisions are not simply based on the individual ETFs themselves. This is a portfolio, and so the combination of the 7 ETFs held at any time must work well together. For instance, if tech stocks show strong reward potential and modest risk of major loss, it is tempting to hold 7 different tech-oriented positions. However, that is a double-edged sword, and compounds the level of risk in the portfolio.
In the example above, we have highlighted in green a hypthetical allocation. Notice that most of the 7 ETFs chosen (one from the 7 eligible in each bucket) in this example are toward the right side of the depth chart. Translation: most of the portfolio is positioned more defensively than average. That said, the biggest position (bucket #1, 30% of the model) is in the second-most aggressive position. This is one of many, many portfolio combinations we can craft using the total of 49 ETFs in the depth chart. This hypothetical allocation might be described as “an aggressive equity position, but supported by a set of ETFs which are quite defensive.” A good balance!
The Modern Income Investor approach is NOT “set it and forget it.” It is a tactical, active portfolio. That means it may trade multiple times a week, not have a model change for a few months, or anywhere in between. It all depends on market conditions and our proprietary model signalling process that is the result of over 30 years of research and dedication to constructing model portfolios that have the potential to succeed in any investing climate.
Each time the model changes, subscribers are alerted, the model portfolio positions are updated in the subscribers’ section of our site, and a trade log entry is made, adding the trades to the model’s trade history.
Modern Income Investing is a unique, proprietary, alternative and time-tested way to manage an investment portfolio. It is built for today’s complex markets, and is designed to provide investors with a compelling, straightforward, research-driven approach that we hope will provide them with a level of comfort and confidence not typically found in today’s “cookie-cutter” portfolio management business.
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