The following describes the two investment strategies that combine to create the eWatch401k investment approach.  This approach creates a very powerful return with less risk than the S&P 500 and is easy to manage. You should only have to change your allocation 4 or 5 times per year, on average.

The Safe Harbor Approach-

While growing up on a dairy farm (let the cow jokes roll in), I became all too familiar with the phrase, “You gotta make hay when the sun shines.” This particular approach does exactly that. When market conditions are brilliantly shining like the sun overhead, we are plowing the market trying to make some money. Where we are in the market is the key. This isn’t common knowledge, but Mutual Fund managers determine their acceptable risk level before they ever start investing. They can choose to have the risk level of the S&P 500, the NASDAQ, the Russell 2000, or any other index. Unfortunately for them, they cannot control the return they are going to have for that given risk level. You can tell if your manager is good one, because he will consistently out perform the other managers working at the same risk level.

The Safe Harbor Approach determines the trend of the small caps. Why small caps? Well, because small cap stocks are like the canaries in the coal mine. Coal miners would use canaries as a warning system that conditions in the mine have turned hazardous. The small caps act as our canary. Small caps are the most illiquid stocks in the market. This simply means that when trouble is coming, they are the first to go down. Fortunately, small caps are also the first to rise again once the market is good. So maybe it is more like a phoenix than a canary? Well, once our algorithms say our canary is still singing in its cage, we are at the market trying to make you some money. Where are we in the market? By this point, we have predetermined which managers have performed the best during the periods we deemed as good. We aren’t looking for diversification among the different funds in different sectors. We are simply looking for a few managers who have a history of performing very well when the market was in good shape. When the market is in bad shape, we seek the safety of Safe Harbor of money market funds or bonds. Since 1988, the market has been in a good mood about 60% of the time.

Over the passed 18 years, this approach has worked efficiently enough to garner $5.8 million more than the other major indexes. The pull-backs have been nominal. Because of this, the return has more than doubled that of the indexes. The annual return, since 9/1/1988 has been 23.79% per year. Using the rule of 72 you can calculate that if you had started with $10,000 on that date, you would now have $640,000 compared to the $60,000 derived by the other indexes. Remember that in both cases you started with only $10,000.

The Brainstorm Approach-

            I agree that it’s a strange name for a strategy, but why whine about it if it works?! In this approach: 1+1 = 4. Seriously! The dynamics of this approach are truly awesome. This approach takes two funds, which by themselves are unremarkable, and adds a little bit of flavoring to create a “meal” fit for a king!

            This approach doesn’t use the 200+ algorithms that watch the market daily. Instead, it uses an entirely different set of algorithms to watch over and compare just the two funds on a daily basis.  One fund represents all the aggressiveness and potential the market has to offer. The other fund represents market stability and strength during down times. Remember that neither one by themselves is very good in the long run. By combining the two using algorithms, you are doing something very awesome. The best part of it all is that our objectives are being accomplished with only a few changes between the two funds per year. Both of these funds on their own make less than 7% annual return. Here, you can see that the emerging market funds give you way too much volatility for that small of a return. The upside is that the algorithms have you switching less than 2 times per year, but the annual return since 9/1/1988 sky rockets to 21.52% per year.

I’ll do the math for you. The Rule of 72 states that your money should have doubled every 3.35 years (7 / 21.52 = 3.35). Over the last 18 years your money would have doubled 5.37 times (18 / 3.35 = 5.37). So the bottom-line is that $10,000 would have doubled to $20,000, $20,000 to $40,000, and so on and so forth until $432,000.

Hopefully, by this point you have learned how the Rule of 72 works. You can now see how important it is to aim for a good return. 

Aim high and shoot straight! Don’t let the next 18 years escape you!