Roberto Anzellotti @IlMatematico: "A 50-50 EXAMPLE PORTFOLIO: COPYTRADING..."

Italy

Edited

A 50-50 EXAMPLE PORTFOLIO: COPYTRADING & DIVERSIFICATION One of eToro’s key advantages is probably the Copytrading. If you’re busy and can’t manage your portfolio full-time or if, like eToro’s founder @YoniAssia, you believe others can manage your investments better, copytrading lets you build a team of investors to follow. Previously, I explained why a Popular Investor might outperform institutional investors or ETFs. If interested, read here: etoro.tw/3BJfmVC However, even with copytrading, it’s essential to adhere to portfolio construction principles, particularly diversification. There are many ways to build a portfolio, and today we’ll propose one. If you’re interested, we’ll explore other alternatives in the future. In our example, we’ll construct a balanced 50-50 portfolio, splitting equally between Popular Investors and other asset classes. We will assume a minimum investment of 200$ per month with which you can purchase one of the 5 hypothesized Investors (who already differentiate within their portfolios) and subsequently the 5 assets, in such a way as to build a complete portfolio in 10 months and then continue in the following months by purchasing new shares. 50% VARIOUS ASSETS 50% of the portfolio will be composed as follows: #️⃣ 10% GLD (SPDR Gold) the most classic of defensive assets, to give a bit of stability to the portfolio #️⃣ 10% BNDX (Vanguard Total Bond Market Index Fund ETF) while I’m not a fan of bonds, I acknowledge their role in reducing volatility in conservative portfolios #️⃣ 10% SPY or VOO (ETF on the $SPX500) to reproduce the best performing stock index in the world in recent years and in my opinion also in the near future. #️⃣ 10% SCHD (Schwab US Dividend Equity ETF) being a generic and sample portfolio, I chose to add the SCHD both to calm the general fluctuations of the portfolio, and to guarantee a constant flow of dividends, constantly increasing over the years #️⃣ 10% $BTC (Bitcoin) How could I not include Bitcoin? For some time it will remain an asset that will push portfolios upwards and will be an excellent defense against inflation (in the long term) 50% COPYTRADING Even in copytrading we must differentiate: we cannot focus on a single Popular Investor! To select the 5 PIs to copy, we’ll use eToro’s strategy labels to assemble a diverse, minimally correlated team of investors. In this post, I explain the types of strategies present in etoro (which I cannot explain here for reasons of space): etoro.tw/3NKfs1u The 5 Popular Investors, chosen for different investment areas and reliability (i.e. history of at least 5 years), are the following: #️⃣ VALUE: In this sector the obvious choice might have been @JeppeKirkBonde , eToro’s #1, but now it is too copied and therefore I suggest @triangulacapital both for its performance and for its consistency over the long term. #️⃣ GROWTH: in the growth sector it is really a great fight between @rubymza and @jaynemesis so, look at both and choose which one convinces you the most #️⃣ MACRO: Based on macroeconomic analysis @thomaspj has been guaranteeing positive years for more than 5 years #️⃣ QUANT: uses mathematical models, algorithms, and statistical techniques to create trades, often using large datasets and data-driven decisions, here my selection is @SimoneRizzetto88 #️⃣ MULTISTRATEGY: @IlMatematico , of course! Regardless of the specific assets or PIs chosen in this example, a well-constructed portfolio should generally look like this: uncorrelated assets and Popular Investors that don’t overlap too much. In the graph image you can see the performance of this portfolio in a hypothetical period of 10 years: -> For ease of calculation, in the graph we assume the investment of a one-time sum of $200 for each asset in 2014. -> For the years in which some PIs were not yet active, we assume an unchanged capital. -> To avoid distorting the graph, the Bitcoin data (dotted line) are drawed as divided by 10. -> At the end of the 10 years considered, the $2000 invested would have become $31,400 ($9000 excluding BTC); this hypothetical portfolio, ignoring the performance of Bitcoin which would distort the result too much, would have had a CAGR (compound annual growth rate) of 16.23% per year. However, consider that some PIs among those considered may have had cryptocurrencies in their portfolio. Let us repeat that it is not so much the performance of the portfolio that matters, but rather the diversification criteria used to give the example (all the more so given that this data suffers from "backtest overfitting bias"). Let me know in the comments if this example was helpful and if you’re interested in other example portfolios. I am @IlMatematico, and through my algorithms, I try to extract value from the markets. Follow me to stay updated on my latest insights and movements in $BTC, $SPX500, and $NSDQ100.