How to diversify your portfolio to protect yourself from market risks? (15/20)

So we end up with a portfolio quite close to that of Marc Faber, with different weightings. To be complete, let us also note that there is a method close to that of Marc Faber, the Swiss, recommended by Meb Faber (not to be confused, he is an American). His system distributes 5 assets at 20% each: gold, bonds, real estate, domestic stocks and international stocks. The subtlety is that the portfolio is revalued once a month thanks to a hint of technical analysis.

For each asset, we examine the 10-month (or 200-day) moving average. If the price is above, we stay invested; if the price is below, we switch to cash. Implicitly, cash is therefore the 6th asset in the portfolio, but only during certain periods and for certain positions. Meb Faber would obtain a slightly higher return than the market, but with much lower volatility.

As I am always wary of technical analysis, I did some tests on gold ETFs, Swiss bonds, Swiss real estate, Swiss stocks and international stocks. The results are interesting, without being extraordinary, because transaction costs must also be taken into account. The method is quite effective for stocks and bonds (slightly higher than buy&hold and with less volatility), but mediocre for gold and real estate. You have to play a little with the moving averages to obtain the desired effect for each asset. I will present soon, and once a month (as in Marc Faber's strategy), a small status report for each type of asset.

Of course, you can also choose to stay invested in stocks at 100%. As long as you can keep a cool head, it's worth it, even if it's riskier in terms of volatility. After all, no matter what happens along the way, it's the result that counts. However, I advise against anyone who doesn't have an investment horizon of at least 10 years and good stock market experience to do so (especially with current prices). Let's not forget that our worst enemy is always ourselves, as Graham said. And I agree with him.

Beyond all his thoughts on the composition of the portfolio, in the end, it is more the securities that we select that are essential. Even 100% invested in stocks, we can indeed get away with a volatility that remains reasonable if we stick to securities that pay increasing dividends and acquired at a fair price. We also reduce the risk by practicing dollar cost averaging.