The Self-Driving Portfolio (“SDP”) from Caritas is an autonomous, all season/all weather portfolio much like some of the “Robo-Portfolios” you’ve heard of at Schwab or Fidelity, however this one is fully invested among all asset classes with a downside buffer in the form of covered call options. And it is ultra-diversified, with ultra-low fees, for maximum performance.
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Applying the Warren Buffet approach to long term investing and diversification, we believe it best to subscribe to a “buy and never sell” philosophy. The SDP is changed infrequently, diversified among ten to fifteen low-expense ETFs, and covered against downside risk with call options. Therefore, it’s self-driving. It does what you need it to do without having to worry about it, based upon its ultra-diversify among stocks, bonds, commodities, real estate, and cash. We make changes to the asset allocation quarterly, in small increments, however the portfolio is always long term in nature, and thus doesn’t need to be fussed with a with many unrestrained portfolios. Low turnover, maximum diversity, low fee, long term, with the kicker of a call option in case the floor falls out. That’s the SDP, in a nutshell.
HERE IS ONE EXAMPLE OF THE TYPICAL SDP PORTFOLIO:
Just like in an automobile with air bags, your portfolio has a similar “risk reducer” in the form of a covered-call option overlay, our proprietary restraint in the case of market volatility. The covered-call option reduces potential downside risk.
Without a covered-call option, you aren’t “covered,” so to speak, which is why the terminology is stated as such. The option on the ETF reduces your downside risk exposure. You also achieve higher income potential from the sale of the option to the option buyer. In short, to continue to automobile analogy, the covered-call option safeguards you somewhat against any unexpected “collisions” you might experience while invested in the market.
Using the automobile analogy, the Self-Driving Portfolio never needs a tune-up, it rarely needs an oil change, and it certainly will never get a flat tire. It runs on everything that a typical freely trading, supply/demand open market system runs on: Momentum (up and down, ebbing and flowing, but with muted volatility), psychology, earnings reports, technical trends, revenue changes, accelerating/decelerating earnings, management shake-ups, and the occasional geo-political disaster or halcyon event that brings justified euphoria to investors. The key to this is ultra-diversity among assets in multiple asset classes globally, all in one portfolio through use of broad-market Echange-Traded Funds, literally thousands of stocks, bonds, real estate holdings, precious metals, and other low correlation assets in one portfolio. For one fee, with the additional risk mitigation from a tactical covered-call option strategy, reducing risk and increasing income.
The Self Driving Portfolio is just that: Self-Driving. You can leave it alone to do its job without having to hire or fire your money manager, or without having to read up on, or research, all the latest, greatest stock, bond, hedge fund, or private equity pink-sheet ideas imaginable.
The Portfolio does all that for you, since you are owning the market, rather than trying to out-perform the market. “Meet the market, don’t beat the market” is the motto here. Despite the fact that – through the covered-call writing strategies that Cáritas employs – you will, potentially, be able to beat the market in the long run, should optimal conditions prevail in the tactical allocation of the options contracts. (See “Covered-Call Options Strategies” to learn more about this age-old, proven investment methodology.)
And you won’t have to worry as much about running into a pot-hole, or whether someone is asleep at the wheel, let’s say. It is an all-weather performer, allowing you to sleep well at night, and rest assured that you’ve got diversified exposure to global equities, global bonds, cash, real estate, commodities, etc.
The SDP is maximally diversified for all-season performance, and doesn’t look like any other mutual fund, although it could be construed as a quasi-hedge fund of sorts, without the high cost. Examples of what the SDP is comprised of include many varied listed-baskets of investments, including for instance, the following: The Vanguard Total Real Estate Index ETF (symbol: VNQ), the BlackRock Biotech iShare ETF (symbol: IBB), and the Nasdaq Invesco Powershares ETF Trust (symbol: QQQ), State Street Advisors Dow Jones 30 SPDRs Stock Index (symbol: DIA), among over a dozen other liquid, listed ETF vehicles. All of these are known as “Exchange-Traded Funds” (or “ETFs”), and they all trade on either the New York Stock Exchange, the NASDAQ, or the American Stock Exchange.
The TOTAL expense ratio of the Self-Driving Portfolio, which INCLUDES the underlying costs associated with the ETFs themselves, as well as the fee that Cáritas charges to design and manage the strategy – the ALL-IN, COMPLETE COST – will vary between 0.13% and 0.72% per year, depending upon the design of the portfolio and the amount of assets in your account. Average total fees per account will be somewhere in between those percent figures–at or around 0.40% annually. This is the total, “All-In” fee you pay per year (i.e., less than 30% of what you’re paying to invest in your typical simple domestic equity mutual fund).*
*Source: Investopedia, “Expense Ratios of Typical Domestic Equity Mutual Funds,” June 14, 2018.