As I wrote on Friday, gold has triggered a Re-Entry Rule and the gold miners are putting on a rip-roaring rally.

So, how much of your money should you allocate to these types of investments? How should you go about deciding which ETFs or equities to buy?

Great question, right?

Unfortunately, it’s a question that most investors don’t even know how to approach.

The key insight that drives all of the development of TradeStops is this:

What you buy is less important than how you manage what you buy.

The reason that this principle is so important to TradeStops is because early on in my investing career I had the distinct impression that if I had just done the exact opposite of every investment decision I had ever made, I would likely be a very wealthy person.

Have you ever had that feeling? I bet a lot of us have.

When we see the same negative outcomes repeated over and over again in our investing, there is only one explanation – our own behavior.

How do we improve our own behavior? The foundation of good investment decision-making is:

  1. Understanding our risk tolerance;
  2. Understanding how our investments work together to create our investment risk profile.

When our risk tolerance is out of line with the risk profile of our investments, we’ll make emotional decisions over and over again.

Today, what I’d like to bring to your attention, is how you can use the tools available in TradeStops to make some high level decisions about how to structure your own portfolio.

One nice benefit that we enjoy as investors today is the rich universe of ETFs that we have access to. We can use these ETFs to help us make some decisions around our personal asset allocation. GLD, for example, is the ETF that tracks the cash price of gold bullion.

There are lots of websites out there that offer tools to help you easily find ETFs of interest. One that I use regularly is ETF Replay. The Summary section of ETF Replay is a great place to browse around and find ETFs that represent asset classes that you might be interested in.

Browsing through the Summary pages of ETF Replay, I found the following ETFs of interest to me (note that when deciding between similar ETFs I tend to favor those with the highest Net Assets):

  • VTI: Vanguard Total U.S. Stock Market – I opted for an ETF to capture the whole US stock market.)
  • IEF: iShares Barclays 7-10 Yr Treasury (7-8yr)
  • VEU: Vanguard FTSE All-World ex-US
  • VWO: Vanguard FTSE Emerging Markets
  • GLD: SPDR Gold Shares
  • USO: United States Oil Fund
  • LQD: iShares iBoxx Invest Grade Bond (7-8yr)
  • SHM: SPDR Short-Term Municipal Bond (2-3yr)
  • IYR: iShares Dow Jones Real Estate REIT
  • GDX: Market Vectors Gold Miners Equity Index

The above list is by no means exhaustive. It’s just a list of possible investment categories that captured my interest (and that had sizable net assets).

Now I’m going to build a Watch Only portfolio of the above ETFs (starting with 1 share each) with $100,000 in cash and then run that through my Risk Rebalancer tool to get a rough idea of how $100,000 could be allocated across the above investment classes.

Here’s how it all came out (sorted by VQ% ascending):


As you can see in the above, GLD and GDX together add up to just under $10,000 which is about 10% of this $100,000 portfolio. (Note that I’m disregarding the SSI indicators for this exercise.)

Interestingly, this is a VERY low volatility portfolio overall, with 88% of the assets in low volatility investments.


Now I didn’t go through this exercise because I think that you should allocate your assets as I have above. It’s just an example. I want you to go through this exercise yourself, so that you start to build your own position in gold and gold miners in a pre-meditated way.

Given your portfolio size and your asset class preferences, approximately how much should you be looking to invest in gold and the gold miners?

Think about it. Play around with some numbers in TradeStops using some ETFs as proxies for asset classes. The absolute worst thing you could do would be to buy more gold or gold stocks than you are comfortable buying. If you do that, you will very likely get stuck in a losing position (if the rally peters out) or take your profits too soon (if this is indeed the beginning of a new bull market).

You need more than just hope. You need a plan … and you need to stick to your plan. That, more than anything, is what will ultimately determine your success.

To your success,