Allocation Change to Portfolio

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I've been doing some testing with the ETFs that correspond to the Funds of this portfolio, and there is a significant performance gain if we scale into the drop of the overall markets.  This is because instead of waiting for the LONG signal to be generated, we will be purchasing shares at increasingly cheaper prices, ensuring that we participate in a reversal, when it occurs.

THIS METHOD RELIES ON YOUR BELIEF THAT OVER THE LONG TERM, MARKETS WILL RECOVER AND MOVE HIGHER.

Here are the rules that I am playing with:

1. If ETF has a LONG recommendation, invest according to the last calculated allocation.  For example, AGG / F-Fund is presently considered a LONG, hence for the 4-ETF/fund portfolio, your allocation would be 48%.
2. If the ETF has a CASH recommendation, AND
3. If the ETF has fallen 0 - 10%, then DO NOTHING (keep funds in cash),
   
4. ELSE IF the ETF has a CASH recommendation, AND
5. If the ETF has fallen -10% or less (e.g., more negative), the transfer from cash 2x the amount from the most recent high to the present low, in terms of percentage decrease.
   
   For example, the EFA / I-Fund has fallen about 19%, hence the scale amount is 2x19% = 38%.  Because the recommended allocation of EFA is 3% for the 4-ETF/fund portfolio, and 6% for the 3-ETF/fund portfolio, you would transfer 38%*3% = ~1% and 38%*6% = ~2%.
   
   The SPY/C-Fund has fallen about -11.5%, hence the scale amount is 23%.  The recommended allocation for SPY is 23% for the 4-ETF/fund portfolio, and 44% for the 3-ETF/fund portfolio, you would transfer 23%*23% = ~5% and 23%*44% = ~10%.
   
   The VXF/S-Fund has fallen about -14%, hence the scale amount is 28%.  The recommended allocation for VXF is 26% for the 4-ETF/fund portfolio, and 50% for the 3-ETF/fund portfolio, you would transfer 28%*26% = ~7% and 28%*50% = ~14%.
   
6. If the ETF has a CASH recommendation, AND
7. If the market continues to decline after Step 5 is performed, for every -10% decline in the market, reallocate at the next scale amount.
   
   For example, the VXF has fallen about -14% to date.  When it falls -20% total decline, we would ensure that a 40% scale of the present allocated amount (26% if using today's recommended allocation for the 4-ETF/fund portfolio, e.g. 40%*26% = 10%, and 50% if using today's recommended allocation for the 3-ETF/fund portfolio, e.g. 40%*50% = 20%).
   
8. Continue steps 6 and 7 as the market moves down.  After the market transitions to a 50% loss, you will be 100% invested (no monies in cash).  The likelihood of the market continuing below 50% is very low, but as we saw in early 2009, it certainly can happen.
   
9. Once the ETFs signal a LONG call, reallocate the individual ETF/Fund as per the recommended amounts.  Do NOT disturb the ETFs/Funds that continue to have a CASH recommendation, e.g., keep their present allocations.

In accordance with the preceding rules, I have affected the following portfolio transfer, which will most likely occur Friday, May 21st:

4-ETF / Fund Portfolio

• AGG / F-Fund:  48%
• EFA / I-Fund: 1%
• SPY / C-Fund: 5%
• VXF / S-Fund: 7%

3-ETF / Fund Portfolio

• EFA / I-Fund: 2%
• SPY / C-Fund: 10%
• VXF / S-Fund: 14%

As always, you are responsible for your own trading decisions, not me.  Please do your homework.

Regards,

pgd