When the time comes for the AI bubble to collapse, which of the three portfolio types will be the most stable and deliver the highest returns?
The current default portfolio consists of weights of VOO 20, MAGS 10, QQQ 10, VXUS 15, SGOV 10, BND 20, and IAIM 15.
I assumed a method of consistently purchasing $1,000 on the 1st of every month using a dollar-cost averaging strategy.
Here is the first strategy.
On the 1st of every month, dollar-cost averaging is executed according to the predetermined portfolio ratios.
However, whenever the price of a stock drops by 2.5%, 10% of the holdings in that stock are sold, and that amount is used to purchase additional safe assets in proportion to increase the account's defensive capability.
Subsequently, if the individual stock rises by another 5% and shows signs of recovery, aggressive assets are purchased again at that time in proportion to the original ratio.
Here is the second strategy.
Similarly, monthly dollar-cost averaging is executed on the 1st of every month according to the portfolio ratio.
However, the selling criterion is based on RSI strength; if a stock's RSI falls below 35, the entire position of that stock is sold, and safe assets are purchased to avoid a severe bear market.
Conversely, if a stock's RSI exceeds 75 and enters the overbought zone, the stock is sold, and profits are locked in by repurchasing safe assets according to the ratio.
In addition to this, a split buying rule utilizing moving averages is added.
If a stock breaks below the 20-day moving average, 10% of the planned investment amount is purchased;
If it breaks below the 60-day moving average, 20% is purchased in installments over 5 days.
If it breaks below the 120-day moving average as well, an additional 20% is purchased in installments over 5 days;
If it breaks below the 180-day moving average, the remaining 20% is purchased in installments. If further declines occur, such as breaking below the 20-day moving average again,
this is a strategy to invest all remaining cash to aggressively purchase aggressive assets.
This is the third strategy.
It is a simple method of consistently making dollar-cost averaging purchases on the 1st of every month according to a fixed ratio, without being significantly swayed by market conditions.
Since 30 years of historical data for MAGS ETFs are unavailable,
we conducted a backtest by substituting them with QQQ, which exhibits the most similar characteristics.
As a result, the third strategy, simple dollar-cost averaging, took first place in terms of long-term returns.
The strategy that caused the least psychological distress during the investment process was the first strategy.
On the other hand, the second strategy had to endure the most severe psychological distress for the longest period during the collapse of the dot-com bubble, when QQQ fell endlessly for two years.
In fact, no one knows whether the current AI bubble will crash as miserably as the dot-com bubble of the past. This is because, recently, the Federal Reserve has been aggressively injecting dollars before the U.S. stock market collapses, and the U.S. Treasury Department has been strongly implementing policies to revitalize the industry, such as directly purchasing shares of AI companies.
Thanks to these government-level defenses, the trend is that endless crashes like those of the past are not easily occurring.
To be honest, the future is a realm where no one can know for sure.
Ultimately, the correct answer might be to quietly manage your investments according to the ratios you initially set, and if an inevitable bear market arrives, hold on by comforting yourself that it is an opportunity to buy blue-chip companies you have always wanted to acquire at a low price.
