How to Use

How To Use Our Strategies

For best results, please invest a few minutes reading this "How To" guide.

Pick Strategies to Follow

Use the following chart to determine which strategies to follow.

Time HorizonAmountStrategies to Follow
Less than 3 years$1000 or more• For Safe Keeping
3-5 years or longer$3,000 or Less• Just Getting Started
3-5 years or longer$3,000 – $19,000• Adding Value
3-5 years or longer$20,000 – $29,000• Adding Value
• Switching through the Sectors
3-5 years or longer>$30,000• Adding Value
• Switching through the Sectors
• Covering Your Assets

Using the above chart, you may decide you want to follow as many as 4 strategies. For example if you have $40,000 and want to put $10,000 dollars aside for an emergency fund, then you would put $10,000 dollars in each of the 4 strategies: For Safe Keeping, Covering Your Assets, Switching through the Sectors, and Adding Value.

If you do not have the option to trade individual stocks in your retirement account, try our 401k Funds strategy.

401K Funds

How to follow our 401K Funds strategy

We created the 401K funds strategy for our users who do not have the option to trade individual stocks in their retirement accounts. For this strategy, investors need to determine an appropriate “Equity to Bond” ratio. To determine this, the investor should determine what his or her “Risk Profile” is. Yahoo® has a quick quiz to help determine this located at the following link:

Take the quiz to determine your “Risk Profile” and then consult the following table to help determine your Equity to Bond ratio.

Risk ProfileEquity to Bond Ratio
Very Aggressive100 : 0
Aggressive, Moderately Aggressive80 : 20
Moderate, Conservative60 : 40
Defensive, Very Defensive40 : 60

When you consult the “401K Funds” strategy page, select your Equity to Bond Ratio and our web page will suggest a percent allocation for each of the recommendations.

Be Mindful of Your Trading Costs

Without frugality none can be rich, and with it very few would be poor. —Samuel Johnson

Trading costs can have a significant drag on the performance of your overall portfolio. To minimize this effect, have a goal to keep the commissions you pay below ½ - 1 percent of the amount of each trade. For example, if you have to pay a $10.00 commission, then you should try to buy or sell a minimum of $1,000 to $2,000 worth of a given security at a time.

Open an Online Brokerage Account

Take the first step in faith. You don't have to see the whole staircase, just take the first step. — Martin Luther King, Jr.

There are many companies on the Internet through which you can trade stocks, for example TD Ameritrade™, E*Trade™ or Fidelity®. Pick a reputable company with low fees of $10.00 or less per trade. Since many of SMS Investing®’s strategies recommend buying well-known ETFs (Exchange Traded Funds) like Vanguard®, iShares®, and PowerShares®, try to find a broker which offers free trading on those ETFs.

Many of SMS Investing® strategies recommend monthly trades. These trades may have tax implications, so a tax advantage account— like an IRA, a Roth IRA or a 401(k) — works best. If you are trying to follow these strategies in a 401(k) you’ll need the ability to make individual stock trades. Check with your employer to see if your 401(k) has that option.

For taxable accounts; "Adding Value," "Just Getting Started" and "401k Funds" strategies have less frequent trades but still offer some protection against long term bear markets.

What to do with Cash

We've demonstrated a strong track record of being very disciplined with the use of our cash. We don't let it burn a hole in our pocket. —Steve Jobs

Periodically, some of our strategies recommend holding cash. This happens when our calculations indicate there are not currently worthy opportunities in which to invest. Winning by not losing is an important part of our investment philosophy. Depending on what kind of an account you have, you may have some different options. You may have the option of holding a "Cash Balance" and be paid a small amount of interest. Some accounts require you to put the money into one of their core funds. Money Market funds, 1-3 year treasuries, or holding cash in your account are all viable options with our strategies.

Be Consistent

When you look at people who are successful, you will find that they aren't the people who are motivated, but have consistency in their motivation. —Arsene Wenger

The back testing results on the main page of our website were obtained by “religiously” executing trades at the same interval (30 days apart) every month, month after month, year after year. To obtain similar results you will need to have the same consistency in your trading process with regard to both timing and the dollar amount of the trades. Don’t introduce any new variability by trying to outguess the short term oscillations of the market.

Login with an account and sign up for our strategy email notifications and we will notify you as soon as our strategies our updated. This will help you be consistent with the timing of trades. The recommendations are time sensitive so try and execute the trades within a few days (if not the same day) as you receive them.

You can also follow us on Twitter and we will let you know when the strategies have been updated. 

Be Patient

How poor are they that have not patience! —William Shakespeare

If you look at the back test results on each of the strategy pages, you will notice that there are certain time periods in which there is not much gain, but then there are other time periods the gains are substantial! Such is the nature of investing. The key is to be invested when the big moves happen, not after the fact. Think like a fisherman, be patient and keep your hook in the water. You never know when you will catch the big one!

Be Un-Emotional

One ought to hold on to one's heart; for if one lets it go, one soon loses control of the head too. —Friedrich Nietzsche

No matter what investing strategy you use (from us or any other source) emotion should have no part in it! Also realize that the online brokers have designed their websites to get you to trade more often. The little red and green flashing indicators feed directly to the fight or flight instincts in our brain! Don’t check your account every day. Stick to your strategy and execute it ‘through thick and thin’ based on data and the rules of your investing strategy. Then forget about it!

Think about the Long Term

Come what may, all bad fortune is to be conquered by endurance.—Virgil

Study the back testing charts and prepare yourself for how you are going to respond in the different time periods, but then look ahead to the overall return. Remember, contributing $200 monthly with only an 8.5% compound interest rate over a working career (21-65) will easily result in an account balance of well over a million dollars. While our lawyers won’t let us guarantee it, the strategies on this web site are designed to help you achieve at least that on average (our testing suggests substantially more)!

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What to do with Contributions

Beware of little expenses; a small leak will sink a great ship.—Benjamin Franklin

There are a couple of things to consider when making contributions to your investment account. Specifically you’ll want to make sure that you consider your trading costs, and also your asset allocation percentages.

Before placing a trade, make sure that you have enough cash to warrant making the trade. Remember you want your transaction fees(e.g. commissions) to be less than ½ - 1 percent of the total dollar amount of your trade. For example, if you pay $10.00 in commissions for a trade, you will not want to place a new trade until you have at least $1000 to invest. If you don’t have enough in your account, simply let the cash sit in your investment account until you have enough.

The other thing to consider is which holding to purchase. We suggest that you take this opportunity to look at balancing your holdings. For example if you are following our “Covering Your Assets” strategy, you would want to have a target allocation of 33% of your balance in each of the 3 funds. Purchase the security or securities which are currently lagging the leader.

Re-balancing your Portfolio

Never go to excess, but let moderation be your guide.—Marcus Tullius Cicero

Conventional wisdom suggests that you should re-balance your portfolio once a year or a maximum of once every 6 months. However depending what you are invested in, that may be too frequently, or not enough. We’ve done some research and back testing on the best way to re-balance ones portfolio for the best performance and come up with a set of rules for how to do it.

  1. Be mindful of your trading costs. Remember to keep you transaction costs to less than 1%. When re-balancing, it usually involves at least 2 trades--a Sell and at least one Buy. If your commissions are $10.00 per trade, you’ll be paying a minimum of $20.00 to move money from one holding to another. In this example, you wouldn’t want to move any less than $2000.
  2. Re-balance through contributions. When making contributions into your investing account, purchase the holdings which are currently underweight to their targets.
  3. Re-balance when a holding is 40% overweight. We have tested several different mechanisms for determining when to re-balance. Based on our results, reallocating when holdings are 40% overweight from their targets, seems to result in the best performance.

    For example, if you had a portfolio of 3 holdings with target allocations of 33% each, and the holdings are currently valued at: SPY- $14000, EFA-$9000, and BND-$7000; you would sell $4000 from SPY and purchase BND with it.

  4. Rebalance as part of an active strategy. If you are following one of our strategies, you'll notice we have a target percentage for each of our holdings. When we recommend a trade, only purchase up to the target percentage allocation. For any cash remainder, follow the rules for a cash contribution.

    For example, if you had a portfolio of 3 holdings with target allocations of 33% each, and the holdings are currently valued at: SPY- $13000, EFA-$8900, and BND-$8100. Let's say that for this month, our strategy recommended selling SPY, and buying EEM (emerging markets). You would sell all $13000 of SPY and purchase $10,000 EEM with it. Then you would purchase $2,100 worth of BND, but the remaining $900 would sit in cash until next time.

  5. Remember rule Number One! If you’re just starting out and you have a small account balance, you might be tempted to re-balance too often. Trading costs can have a significant drag on your portfolio performance. If you can’t move enough money to keep your trading costs at less than 1%, then just leave it as is it. Your focus should be on contributing more money into your account until you have enough for your next trade.

This information may help you analyze your financial needs. The company does not assume any fiduciary duties. The suggestions provided should not be construed as financial, legal or tax advice. In addition, such information should not be relied upon as the only source of information. This information is supplied from sources we believe to be reliable but we cannot guarantee its accuracy. Hypothetical illustrations may provide historical or current performance information. Past performance does not guarantee future results.