Category Archives: IRA
XVZ, cheap disaster insurance?
I have some homework to do. Barclays just released a dynamic volatility ETN, XVZ, that adjusts its holdings dynamically over time. It looks to gain from volatility spikes yet not lose too much value during times of market tranquility. The problem with existing long volatility ETNs like VXX is that they lose a lot of value from contango when markets are calm.
Here’s a look at backtested results of XVZ from the prospectus:
It looks promising but I need to read the fine print before jumping to conclusions. This could be a potentially good hedge to both my XIV and IRA strategies. Rare market crashes ala Black Monday and the flash crash pose serious risks to both strategies. I would feel much better if I could have a cheap hedge in place to protect against these scenarios. More to come later…
Allocation changes
TSP and IRA models signaled allocation changes at today’s close. I wasn’t expecting this till tomorrow but today’s market move was violent enough to boost it up a day.
New allocations:
TSP: 100% G fund
IRA: 100% SHV (again, I’d just hold cash instead as t-bill yields are next to nothing)
I might miss the initial rebound in stocks (whenever that occurs) but I’ll catch a good portion of the next prolonged up move. In any case, I’m not expecting stocks to rebound in an aggressive V shaped pattern. Stocks don’t “crash up” in the same way they crash down.
Strategy Returns to Date
Here’s a look at strategy returns so far for 2011. The broad stock market rose early in the year and has been in a choppy sideways grind since about mid-February. Long term interest rates remain low and have been dropping recently. The 10 year treasury rate is currently below 3%. Gold has continued its rise and recently set new highs.
TSP Strategy
The TSP Strategy signaled a move to 100% C fund last September. After the S&P 500 index rose 10% the strategy switched to a 60% G Fund/ 40% C Fund on the close of trading on January 3rd of this year. Daily moves this year have generally followed the S&P 500 with less volatility and a more gradual upward movement due to the G fund weighting. The strategy is up 3.6% as of close of trading today.
Taxable Account Strategy
The low risk portfolio of my taxable account strategy is up 4.6% so far this year. Returns dipped slightly at the beginning of the year but have since been gradually rising. Returns are based on rebalanced weights at the end of 2010.
IRA Strategy
The IRA Strategy will be 100% allocated in UPRO until either 1.) the S&P 500 index hits about 1377 (came close but didn’t quite get there) or 2.) the S&P 500 index falls enough to signal a move to SHV (basically a move to cash). The strategy is up 16.1% so far this year and very volatile as you can see.
Check out the strategies page for more information on how these portfolios are constructed.
