Many working people put off their retirement investing -- just one more year until it has becomes a "hair on fire" problem. The problem is that we can easily be overwhelmed and shut down. The way to solve this is to focus on what works in the long term -- that is what long term investing is all about -- and allow that to filter out what may work in the short term but won't stand the test of time. We continue to examine different portfolios to see what we can learn and use to further our investment portfolios.

We continue to keep it simple stupid with SIBs -- a 'Simpler Is Better' portfolio to explain and understand good practices that can improve returns and lower risk compared to doing nothing and hoping.

A SIBs is built from one ETF per asset class. The ETFs we selected for these portfolios are as follows:

We are going to contrast two momentum strategies -- one of the original approaches created by Goldman Sachs and the reference strategy used by MyPlanIQ.

There are many variants of the Goldman Sachs strategy and we are going to take a simplistic view:

• At any given time there will be three asset classes in the portfolio
• At the end of each month, all the asset classes will be ranked and the top three will be selected
• If the selected asset class performance is below fixed income, the money moves into fixed income
• If fixed income is performing below cash, the money moves to cash

The reference MyPlanIQ strategy is slightly different:

• The investor decides a risk profile which sets the minimum amount of money in fixed income -- the portfolio will never have less than this amount
• At the end of each month, all the asset classes will be ranked and the top two will be selected
• If the selected asset class performance is below fixed income, the money moves into fixed income
• If fixed income is performing below cash, the money moves to cash

To try and compare apples with apples, we set the risk profile at 33 so 33% of the portfolio will be in fixed income and the other two assets will also be 33% each. Therefore, the only difference is that the Goldman Sachs approach has the ability to move to all equities.

Portfolio Performance Comparison

Three Month Chart

Conclusions

• The GS strategy clone has higher returns in the three and five year time horizons but the Sharpe index is lower indicating higher volatility for the additional gains
• The Reference strategy wins in the one year timeframe -- which is interesting as fixed income has been at the bottom of the performance table for some time
• With the recent drop in equities recently you can seen the benefits of balancing out your portfolio with fixed income.

Fixed income isn't just another asset class that gets tossed in with the others and let the best person win. It has a part to play in providing balance and restraint to both the ups and downs of a portfolio.

Having said that, there can be no doubt that the GS strategy has been very successful and a number of people (including ourselves) have cloned it and it is widely used.

This is one of many investment ideas that you can use to deploy in your 401K, IRA or taxable accounts. Prevention is better than cure, which we all know. Just don't leave it -- one more year -- until you get started.

Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

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