What is unique?

www.theoptimizedportfolio.com (TOP) has the following investment approach:

  • find the optimal ratio between return and risk
  • in order to maximize return allow leveraging, but don´t leverage too much
  • make the most out of portfolio selection
  • accept that portfolio selection provides for simple mathematical solutions (even for 30+ portfolios)
  • limit the number of your investments, 8 to 15 (max. 20) investments are OK
  • accept an "plus 110%/minus 10%" or "plus 120%/minus 20%" approach

Stock picking?

TOP does not believe that stockpicking does in the long term substantially outperforms a professionally allocated portfolio. Nevertheless, TOP can be a basis for stock picking since TOP proposes to consider investment into stock markets (= the respective indices). A stock picking approach can take place within such indices.

Interested to find out how to emulate the approach of TOP?

Having read the disclaimer and still interested to find out how to emulate the approach of TOP?

TOP issues monthly proposals for portfolios in four major currencies. These currencies are EURO (€), US-Dollar ($), YEN (Y) and Swiss Francs (CHF).

1. Choose YOUR investment currency

For the following examples we chose CHF.

Choosing the investment currency is important since the risk minimization for each currency results into (sometimes surprising) results.

2. Define YOUR amount of equity and compute the debt requirements

For the following examples we chose an equity of 100 CHF.

The proposed leverage for each currency is shown on the header of each currency column.

Remark: TOP assumes annual interest of 1 year interbank rate plus 150 basispoints for debt.

3. How to invest into a stock market (proposed by TOP)?

Let´s assume TOP proposes to invest 12% into Canadian stocks with a leverage of 4.1.

This means a total investment of 49,2 CHF into this position.

49,2 is computed as follows: 12 units of your equity (12% * 100 units CHF) plus 37,2 units of debt (12 CHF * (4,1-1) leverage)

For such investment you could consider either a tracking fund of the major Canadian stock market index or a certificate, or ... (whatever is cheap to buy and sell but tracks the index).

4. How to invest into a bond market (proposed by TOP)?

Let´s assume TOP proposes to invest 17% into Australian bonds with a leverage of 2.7.

This means a total investment of 45,9 CHF into this position.

45,9 is computed as follows: 17 units of your equity (17% * 100 units CHF) plus 28,9 units of debt (17 CHF * (2,7-1) leverage)

For such investment you could consider buying a bond in Australian currency with maximum credit rating and a maturity of approx. 1 year.