Where do we invest?
In case the huge picture isn't a clue, all of the AlphaDogs' funds are kept with Vanguard. We use Vanguard exclusively for the AlphaDogs portfolio. You can, of course, use any brokerage firm to execute the strategy but we prefer Vanguard. We have chosen Vanguard for a number of reasons, but there are a few that stand out.
Index Funds
An Index Fund is a portfolio that is meant to reflect a certain part of the market or the market as a whole. The value of the fund is meant to reflect the value of the market, or the portion of the market that it is tracking. The Dow Jones Industrial Average (DJIA) is an example of an index. It is made up of 30 of the largest publicly traded stocks in the US. The Value of the DJIA is simply the value of its 30 component stocks. The value of the DJIA goes up or down based on the value of the 30 stocks that make it up.
Vanguard actually created index funds. They were the first to realize the value of indexing the market which tends to grow organically over time - instead of trying to time the market or beat the market through stock selection, as others do in actively managed funds. In addition, actively managed funds generally have higher fees that go to pay for the research and the man hours of the people actively trying to beat the market. Index funds require much less overhead than actively managed funds and therefore generally have much lower fees. The unfortunate fact is, despite all the effort, actively managed funds have not been able to consistently achieve better returns than the market as a whole.
Since inventing the index fund back in the 90's Vanguard has elevated the index fund game. They now offer index Mutual Funds and Exchange Traded Funds (known as ETFs) for the whole market as well as different sections of the market. For example, Vanguard offers funds that track the whole stock market, the S&P 500 companies, the Bond Market, Blue Chip stocks, and small cap stocks. In addition, they also offer funds that cover only the Healthcare market or the utilities industry as well as other industries. These are called Sector Index Funds.
AlphaDogs uses Vanguard's Sector ETFs
AlphaDogs uses Vanguard's Sector ETFs. We get in and out of different sectors of the market based on two factors, the risk level (the chance of them losing value, one measure of which is known as Volatility) of the sector and the growth (whether the sector is appreciating in value) of the sector. When an ETF declines too far in value, we will exit that sector of the market and reallocate our funds to a place we think will do better. By doing this we try to ensure that our money is always invested in a growing sector of the economy. We then balance investments in risky parts of the market, like healthcare and technology, against less risky segments like consumer staples or utilities. If a fund becomes too risky, we will reduce our investment in the risky sector of the market and reallocate to a less risky sector.
AlphaDogs balances risky growing funds with safer growing funds. By paying close attention to the growth potential and risk level of different sectors of the market we are able to to continue growing our money while taking as little risk as possible.
When you pay to help defray the cost of running this website you'll get access to our list of investments and allocations. Some have asked why we are invested in domestic sector ETFs (portions of the US stock market). The answer is simple. More than half of those companies' income is from overseas anyway, so the income is still diversified outside of the United States. Also, the volatility and risk is lower that way.
The AlphaDogs portfolio is seeking to reduce risk in a balanced portfolio constructed of Sector ETFs - it seeks advantage by minimizing risk.
The Trend Following portfolio uses Vanguard’s Index ETFs
Our trend-following portfolio uses Vanguard’s Index ETFs. Usually just one or, at most, a small handful of index ETFs. This gives us massive diversification with a much-simpler-to-follow plan than what you would see in AlphaDogs. This is the portfolio for those of us who believe in buy-and-hold investing in low-cost market indexes but who don’t like participating in market crashes.
The Trend Following portfolio is a ‘one-click’ system of passively investing in the market - but with the added kick from the our system of knowing when to get out and when to get back in.
This is a system that would work well at any brokerage firm you might use to invest your money.
