Tag Archives: Rebalancing

Capital preservation: more than a strategy

People out from investments usually think that this business is easy and high returns are the common rule. If you say: “I invest”, then they look at you as a rich person, when you probably try to avoid a lost of purchasing power caused by inflation. That is usually the most conservative strategy, but the idea behind that behaviour is capital preservation.

Capital preservation is defined as a conservative strategy that tries to avoid the loss of value of your investments. Some investors are just quiet if their money does not decrease, but this little ambition has an enemy: inflation. If the financial goal reduces only to that narrow meaning of capital preservation, they will surely lose purchasing power in the long term. That’s why this strategy is recommended for safe short-term investments, as bonds or certificates.

However, capital preservation means something else, because it is behind every investment strategy. Whether it is more aggressive or more conservative, it does not mean that the goal behind the scene will not be the same: to keep at least the same as we invest and keeping the same purchasing power. Possibly, someone argues that the more aggressive portfolios are designed to obtain the highest return accepting volatility, but no investor is so fool to accept losing their money without a B-plan.

This B-plan to preserve the capital is rebalancing. When an investor receives alerts from their system, he has to decide when to change his strategy. Regular investors are not traders, but they prefer to invest in the long-term. That’s why these investors have to avoid panic in certain periods when markets are bearish or react negatively due to any external reason (e.g. Brexit or similar). Investors have to look at the long term and analyse with their tools the real effect over their strategy and if they have to rebalance their portfolios. What for? First of all, to preserve their capital; secondly, to serve their strategy (more conservative or more aggressive).

In other words, as the main goal for companies is surviving in the markets, the main goal for an investor is preserving his capital. Returns will come, higher or lower, but these will be the second step. Alerts, optimising modules and bootstrapping systems (as T-Advisor has) are the tools to be successful for it.

T-Advisor implements the bootstrapping tool for your portfolios

T-Advisor does not stop improving the platform and providing professional advanced tools for individual investors in an accessible and easy way. This is the new case: our bootstrapping tool.

What is bootstrapping? It is a statistic complex calculation, which is possible to make due to the current computing capacity. This calculation provides an estimation of different results with the probability that it happens, taking into account the past evolution. We apply it to calculate projected returns, also known as forward testing.

Think about your portfolio. As investors, we are sometimes doubtful and impatient. We would like to know how my portfolio would evolve. We are not a kind of psychics or fortune tellers. On the contrary, we are very scientific. Our bootstrapping tool does not provide the certain results, but the possibilities that your portfolio performs in different ranges.

If you log in T-Advisor and choose one of your portfolios, you have just to click on the “bootstrapping” button. You can select the number of trays and years you would like to test with a 95% of statistical confidence. With a simple click, you obtain:

  • The performance simulation for the time frame you have chosen. It displays the maximal possible loss, the time to breakeven and the evolution of the possible good, expected and poor results.

Bootstrapping performance simulation in T-Advisor

  • The cumulative returns distribution that explains the possibilities (in %) to obtain a specific range of returns.

Bootstrapping cumulative returns distribution in T-Advisor

  • And the cumulative returns in a selected year with the probability that it happens.

Bootstrapping Cumulative returns in T-AdvisorThe bootstrapping tool is very useful to detect possible negative evolutions of your investments. The screens helps you make changes and rebalancings in your portfolios to improve your results. As we insist, it is a statistic analysis and provides projections that will change depending the modifications that you include in your portfolio.

T-Advisor has also implemented the bootstrapping tool to make forward testing in shares, funds and ETFs. We will write soon about it.

Market volatility: I need alerts for my portfolio!

We have experienced in the last months a high volatility in the markets. Several events (Greece, China, commodities…) have broken the upward trend after the Great Financial Crisis that exploded in 2008, when the Dow Jones lost around 40% in six months. The drop in August was hard, but not so dramatic, although it has opened a new period of instability and insecurity amongst the investors.

In these cases, investors need to avoid panic. Irrational reactions are the worst and they can be the reason of losing more money, because these decisions are driven by fear. The second step is having a tool to detect alerts and obtain accurate information about the effects in my portfolio.

T-Advisor has such tool: the Alerts Module. When you create a portfolio, you can set the automatic generation of alerts.

Portfolio settings in T-Advisor

The Alerts Module reports up to 10 different situations. Some of the most important to take investment decisions about your portfolio are related to risk, a change of trend, a stop signal and a model signal triggered. You can customize them depending on your preferences.

Alerts settings in T-Advisor

Then you receive the different information in two ways: as reports in your e-mail (if you select this option) and in the module in your T-Advisor interface.

Alerts module in T-AdvisorSpecific alert in T-Advisor

After you receive the alert, you have to assess the information and take a decision. A relevant point is how to decide a change in your portfolio. Our alerts include investment ideas to substitute securities and improve the global performance. In this case, you can rebalance your portfolio, but we recommend you to use our Optimizer tool to better decide the changes.

You can also look for another investment ideas in our Market Opportunities module, in which you can find shares and funds from around 30 exchanges around the world.

Market opportunities module in T-Advisor

To sum up, as investor, do not forget that you have to care about your money. That means that, before looking for returns, you have to fight to preserve your capital, because markets are naturally unstable. That is why you have to look for tools that help you take relevant decisions for your portfolios. You need an alert system, a tool to optimize your portfolio in critical situations and a system to find alternatives to improve your investments. T-Advisor compiles all in the same interface for free. It’s time that you act as an smart investor!


Rebalancing, the successful investment strategy

Is it worth rebalancing or not? It is usually said that a regular rebalance let investors deal better with the market volatility, avoiding the worst effects of sudden negative movements. Rebalancing means capital preservation as the focus of every investment strategy.

In T-Advisor, we apply systematic rebalances every second month for our model portfolios in order to avoid possible losses and improve the performance. Let’s take an example with our Germany stocks model portfolio.

T-Advisor Germany model portfolio main figures

Main figures say that 1-year-return is 34.45%, which is a very nice performance. But this result was only possible to reach with the right tools to select the assets and the regular rebalances. First of all, the portfolio has 10 different assets to diversify the investment. But let’s have a look if we compare the portfolio evolution with the reference indexes. How? With our smart benchmark.

In T-Advisor, you can clone all model portfolios to include them in your investments. If we do it now, we obtain the following results:

Rebalancing: comparative performances

As we have just done the cloning, there is no YTD figure. Smart benchmark is our composite figure that takes into account the proportion of your assets in every benchmark, as we already explained in this blog. Figures say that our portfolio overperformances the smart benchmark. But the system also offers a simulation for the last month:

Comparative chart in T-Advisor

The portfolio has always overperformanced the smart benchmark since last rebalancing on February, the 9th.

If we look it in another way: DAX has on February, 25th, 2014, a level of 9,699.35 points. On October, 15th, the worst day in the year, the level was 8,571.95. To sum up: -11.62%. What happened with our Germany portfolio in the same period? – 10.37%. And what about yesterday? If we compare the whole year, DAX has grown 15.53%, while our Germany portfolio has done 34.45%. As you can see, it’s worth doing a rebalance.

In our case, our system works to find the best assets filtered by our scoring criteria. Every two months, we analyze the assets that work and don’t to create a new successful mix. Our methodology let us say that none of our ETF model portfolios, for instance, has never negative 1-year-returns.