- TIME IN THE MARKET STRATEGY -
Here is a very simple strategy that gives you around 8.5% dividend return p.a for zero work. It involves simply holding the A200 ETF. So, you will get the dividend no matter what the market does. You can find the A200 on this page under "Index Tracking". Note: there are also other asx200 index ETFs there that are probably just as good (like STW and IOZ).
If the market tanks, you can swap some or all of your A200 ETFs for the GEAR ETF. Both the A200 and GEAR ETFs have identical charts.But the GEAR ETF holds about 2.5 times as many stocks for the same investment. So you will go back up holding 2.5 as much stock and get a bigger dividend too.
The good thing about the increased leverage by using the GEAR ETF is that you cannot get margined out. But the ETF charge on GEAR is 0.7% higher than the A200 ETF - which is fair enough since the interest on the cost of the extra shares would be more if you were borrowing the money.
The hard part is picking the bottoms and tops - so don't! Just hold both the A200 and the GEAR ETFs 50:50 and rebalance the portfolio back to 50:50 on the first or last trading day of every month. If the market ends the year flat, you will still get 10-15% dividend. This is partly because GEAR holds more stocks and pays more dividend per amount invested, and also because the rebalancing implements a safe averaging down effect when the market dips. Very often markets peak and trough at the month boundaries which would be optimal.
You can supercharge this alg by altering the rebalance ratio based on where the price is with respect to the 200MA or a forecast preset 12mth average estimate. For example, the index it is 10% below the 200MA you might want to hold 75% GEAR and 25% A200. Likewise, if it is 10% above the 200MA you might want to hold 25% GEAR and 75% A200. This will increase the gain coming out of the dips considerably. I will do some backtesting on this to find what the optimal settings are and post them here later.
Since these ETFs track the ASX200 index it is a no-can-lose strategy over the long term. This is because stock indexes like the ASX200 are not just a portfolio of shares. They implement a momentum strategy where poor performing stocks exit the index and good performing stocks enter the index. So, this is doing the stock selection for you and you can rest easy and collect your big fat dividend each quarter and often get a capital gain as a bonus.
Oh, one more thing. If you receive more than $5000 worth of franking credits in a financial year, then the 45 day holding rule applies to all stocks you receive dividends from. This means you are not entitle to the franking credits if you don't hold the shares or ETFs for at least 45 days over the ex-dividend period. (See here.) So only rebalance the portfolio if the ratio difference is significant and hedge by using CDFs close to the ex-div date.
Any feedback on this strategy is most welcome. I will do some backtesting to get the optimal supercharge settings and report back shortly.
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